Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS

ABERDARE MARKETS AND TOWN HALL COMPANY BILL [Lords]

Read a Second time and committed.

WRITERS TO THE SIGNET WIDOWS' FUND ORDER CONFIRMATION BILL

Read the Third time and passed.

ROYAL FOUR TOWNS FISHING ORDER CONFIRMATION BILL

Considered; to be read the Third time Tomorrow.

Oral Answers to Questions — MINISTRY OF DEFENCE

H.M. Ships (Air-Conditioning Equipment)

Mr. Driberg: asked the Secretary of State for Defence if, in view of the overcrowded living conditions in many of Her Majesty's ships and the cumbersome design and inadequate performance of the air-conditioning equipment therein, he will make representations to the manufacturers of such equipment in the hope that they may develop a more efficient and compact air-conditioning unit.

The Minister of Defence for the Royal Navy (Mr. Christopher Mayhew): I assume that my hon. Friend is referring to the equipment in our oldest ships, where only D.C. supply is available. In these there are limits to the improvements which are practicable. All our newer ships, and virtually all our ships east of Suez or liable to go there, are fitted with efficient and compact equipment.

Mr. Driberg: While that Answer seems very satisfactory so far as it goes, when my hon. Friend says that "virtually all our ships" which go east of Suez are equipped with the modern equipment, does he mean that none of the older ships are normally sent to tropical waters at all?

Mr. Mayhew: No, not none. I say virtually all. I had a particular check made when I was in the Far East. Now and again there are exceptions, like "Ark Royal", when we simply cannot do it. But virtually all our ships are properly air-conditioned when they go east of Suez.

Sir J. Maitland: Can the Minister say whether the very high rate of tuberculosis in the service has been reduced?

Mr. Mayhew: Perhaps the hon. Member would put a Question down about that.

Mr. Manuel: Is my hon. Friend aware of the case, of which I have sent details to his Department, arising from a letter which I received from parents in my constituency? They have been caused great concern and anxiety because of the intolerable conditions which their lad is experiencing in the ship to which he has been posted? They are now endeavouring to buy him out.

Mr. Mayhew: I cannot recall this case, but, of course, I shall look into it.

Dr. Wyndham Davies: Would not the Minister agree that a continuation and extension of the work of the Royal Naval personnel research unit with air-conditioning and habitability problems would be of value?

Mr. Mayhew: I cannot agree that our existing equipment is in an way inefficient or unsuitable. The vast majority of it is extremely good. It is simply the equipment for those oldest ships which can provide only D.C. current. It is not practicable to design and manufacture new equipment for D.C. current.

Rear-Admiral Morgan Giles: Does the Minister realise that living conditions in ships and warships are inevitably overcrowded, and that, whether or not these ships are air-conditioned, there still exists the need for the sea-going allowance which he and I have previously discussed?

English Channel (Oil Clearance)

Mr. Hamling: asked the Secretary of State for Defence how he proposes to apportion the cost of clearing oil from the English Channel on 28th March, 1965.

The Under-Secretary of State for Defence for the Royal Navy (Mr. J. P. W. Mallalieu): In the exceptional circumstances, and without prejudice to future cases, the cost will be borne by Navy Votes. Since the subject has been raised, I am sure the House would wish to acknowledge the promptness and efficiency of the Royal Navy in dealing with this occurrence.

Mr. Hamling: Will my hon. Friend, on behalf of all Members, convey the thanks of the House to the Navy, not only for the expeditious way in which the operation was conducted, but because of the fact that so many men gave up leave to carry out this operation? Are we to understand that the taxpayer is involved to the extent of many thousands of pounds? Is he not aware that the ships involved in the collision were insured? Surely, insurance ought to have covered the cost, and not the taxpayers' money.

Mr. Mallalieu: The cost of the operation was £8,618. We have had a look at the possibility of a claim, but we are advised that one does not lie.

Mr. Hay: Will the Minister accept that we on this side of the House would like to be associated with that tribute to the Royal Navy, and will he accept our congratulations on what must be a noteworthy victory over the Treasury?

Territorial Army

Mr. Murray: asked the Secretary of State for Defence what was the number of commissioned officers, non-commissioned officers and other ranks in the Territorial Army at the latest convenient date.

The Under-Secretary of State for Defence for the Army (Mr. G. W. Reynolds): On 31st December, 1964 there were 9,001 officers, 37,950 warrant officers and non-commissioned officers and 62,222 private soldiers in the Territorial Army.

Mr. Murray: While thanking my hon. Friend for that reply, may I ask whether

he is aware that the cost of these men in the last year was £35 million? Does he not think, in the light of that fact, that a review of the Territorial Army ought to move a little more quickly? Can he say whether the ratio of officers to men in the Territorial Army is as high as, or higher than, that of the Regular Army?

Mr. Reynolds: I am fully aware of the cost of the Territorial Army. My right hon. Friend and I have said in the debates which we have had this year that the defence review of the whole of the commitments of the Defence Services is proceeding, and the Territorial Army will in due course be dealt with as part of that defence review. There is a higher ratio of officers to men, but to a certain extent the Territorial Army is on a peacetime cadre on which its war-time strength would be based, and this necessitates a higher ratio of officers and senior N.C.O.s.

Mr. Goodhart: Does the Minister want more recruits for the Territorial Army? If he does, will he consider asking his right hon. Friend occasionally to say a kind word about the valuable contribution which the Reserve Forces make?

Mr. Reynolds: Neither the Territorial Army nor the T.A.E.R. are at present up to the permitted recruiting strength, but I understand that at present recruits are still coming in at quite an acceptable rate and that under present plans there is a need for them in the rôle which they have to fill. I have spoken from the Box on the subject, and my right hon. Friend and I in visiting T.A. units since October have been very pleased to see the high standard of spirit and of training which they have and the keenness of all the men involved.

Mr. Turton: Will the Minister bear in mind that the delay in reaching a decision and the rumours put out in the Press are having a very damaging effect on recruiting in the Territorial Army? Before he reaches his decision, whatever it is, will he bear in mind the important part which the Territorial Army plays both in reinforcing the Regular Army and in taking its share of civil defence, as well as in aiding recruiting for the Regular Army?

Mr. Reynolds: My right hon. Friend has no responsibility for the rumours which appear in the Press. There have been so many that soon there will be no other permutations on which correspondents will be able to base their articles. As for the defence review, no decisions have yet been taken in respect of the Territorial Army. They will be announced in due course and we have given a pledge to consult officers of the Council of Territorial and Auxiliary Forces Associations in due course.

Mr. Crawshaw: Does the Minister agree that despite the criticisms which are made about the Territorial Army, the money spent on the Territorial Army in the past has brought one of the best returns in Service expenditure?

Mr. Reynolds: As far as its present rôle is concerned, I do not think that anyone on the Treasury Bench has any criticism of the Territorial Army. What we are looking at is the rôle of all our defence forces, including the Territorial Army.

Mr. Tilney: asked the Secretary of State for Defence what is his policy with regard to the reorganisation of the Territorial Army.

Mr. William Hamilton: asked the Secretary of State for Defence what investigations are being conducted into the rôle and cost of the Territorial Army.

Rear-Admiral Morgan Giles: asked the Secretary of State for Defence whether he will now make a further statement about the future of the Territorial Army.

The Deputy-Secretary of State and Minister of Defence for the Army (Mr. Frederick Mulley): I am not yet able to add to the statement made in the debate on the Army Estimates by my hon. Friend the Under-Secretary of State. The rôle of the Territorial Army forms part of the current defence review and the question of its organisation must be linked with this.

Mr. Tilney: Has the right hon. Gentleman noted the alarm of all ranks, especially on Merseyside—always quite a good recruiting area—caused by newspaper articles saying that the Government intend to abolish the Territorial Army? Since the Territorial Army expects a change

of rôle and organisation, will not the right hon. Gentleman agree that it is the ideal body for raising a reserve force of disciplined men, for which there will always be a need?

Mr. Mulley: As my hon. Friend the Under-Secretary of State said, we are concerned that this delay must cause concern to keen Territorial soldiers, but it is inevitable that in such a review there will be speculation in the Press, for which I and my Department have no responsibility. We shall hope to carry the Territorial Council and the Associations with us in any reorganisation that becomes necessary as a result of the review.

Mr. Hamilton: Will my right hon. Friend give an assurance that, while in no way denigrating the work that the Territorial Army might have done, or is doing, if the review reveals that our economic pace cannot sustain the Territorial Army at its existing level he will not hesitate to prune it drastically?

Dante Irene Ward: I hope not.

Mr. Mulley: I think that my hon. Friend can be satisfied that the outcome of the defence review will be such as to relate our military needs with our practicable expenditure.

Mr. Ridsdale: With all this talk of reviews, is it the Labour Government's policy to carry out the Army order, "Advance in review order. By the left—slow march"?

Mr. Goodhart: Will the right hon. Gentleman remember that much of the alarm caused by this review stems from suspicion that Ministers are more interested in making some financial gesture rather than in the strength and health of the reserve forces themselves? Will he make a separate statement about the future of the Territorial Army before the Summer Recess?

Mr. Mulley: I cannot give any undertaking as to date. It would surely be nonsense to suggest that the Territorial Army is not part of the defence forces of the Crown which are the subject of the review. Quite clearly, decisions affecting the reserve forces must be inter-related


with decision affecting other aspects of commitments and forces.
As to intention, we made it quite clear in the White Paper that we wanted to reorganise the reserve forces more in accordance with military needs as we see them. It was in this context that we on this side had the courage to make the first call up of the "Ever-Readies."

R.E.M.E. Association (Mrs. Edwards and Mr. Harris)

Mr. van Straubenzee: asked the Secretary of State for Defence why he will not count as reckonable for superannuation the service with the Royal Electrical and Mechanical Engineers' Association prior to 1st April, 1960, of Mrs. G. M. Edwards and Mr. J. H. Harris, both of Wokingham.

Mr. Reynolds: As I have explained in letters to the hon. Member, it is because before then the Association was financed from regimental, that is to say private funds, whereas by Statute only service remunerated from public funds may be reckoned for a Civil Service superannuation award.

Mr. van Straubenzee: While acknowledging the Minister's personal efforts and the voluminous correspondence on the point, may I ask him whether he will not accept that it is quite clear, particularly in the case of Mrs. Edwards, that on taking on this post working for the R.E.M.E. Association she had no idea whatever that she was working for a private voluntary organisation and that she would be forgoing her pension rights? Did not the same thing apply to her predecessor? Does not the Minister feel that, inadvertently perhaps, there has been an injustice which ought to be put right?

Mr. Reynolds: The hon. Member's statement is probably correct, and in any event I have no means of disproving the statement that the lady did not realise that she was going to a private organisation when she began that employment. I am, however, absolutely certain that within a very short time of starting it she was aware of the fact that she was not working in Government employment. In the correspondence which I have had with the hon. Member I have given reasons for that.

Defence Commitments (Review)

Mr. Marten: asked the Secretary of State for Defence if he will now make a statement on long-term defence commitments.

Mr. Wingfield Digby: asked the Secretary of State for Defence in which overseas commands there will be economies in defence demands for foreign exchange; and what will be their extent.

Mr. Hamling: asked the Secretary of State for Defence whether he will now make a statement on the reduction of overseas defence commitments.

Mr. Dempsey: asked the Secretary of State for Defence what economies he expects to achieve by means of cutting down overseas commitments; and if he will make a statement.

The Secretary of State for Defence (Mr. Denis Healey): Our review of defence commitments is still in progress and I have nothing to add at present to what I said in the defence debate on 3rd March.

Mr. Marten: As the Government have been at this review for six months, may we be given some reason for the extraordinary length of time which it is apparently taking? May we be told when it is likely to be completed? Are we to await the outcome of Mr. McNamara's proposals on nuclear weapons? Can the Minister confirm that there is no delay due to differences of opinion in the Labour Party?

Mr. Healey: The reason for the time which has been taken so far is that, for the very first time, a British Government are making a really stringent and fundamental review of the cost, capability and commitments of all their forces, and this cannot be done quickly. The only experience which we have in the past of the sort of decision to which we have to move was the experience of the decisions taken with such precipitous haste by the right hon. Member for Streatham (Mr. Sandys), who was Minister of Defence in 1957, all of which were reversed within three years.

Mr. Hamling: Does not the Minister agree that one of the reasons for the delay in publishing the results of this


review is the failure of the previous Administration to do anything about it? Does he not agree that this review will make our forces more efficient than they were before?

Mr. Healey: Yes, Sir. The main purpose of the review is to provide the taxpayer with value for the money he spends on defence.

Mr. Dempsey: In view of the need to relate military expenditure to our economic resources, will the Minister say how soon we are likely to have the statement? Is he aware, for example, that certain bases can easily be reduced and that others can be eliminated altogether? How soon will it be before we receive this report? Will it be before the Summer Recess?

Mr. Healey: The decisions taken under the defence review will, of course, be announced as they are taken. I hope that some will be announced before the Summer Recess. Others may take longer.

Mr. Soames: Will not the Minister agree that the major differences between this defence review and the many others which have taken place in recent years are, first, that this has been surrounded by a public relations exercise and, secondly, that it is taking an inordinately long time to come to fruition? When will the Minister announce it? Will he give an assurance that at least he will announce it before the next election?

Mr. Healey: I cannot speculate on the date of the next election. I think that I should be giving the right hon. Gentleman an uncomfortable time if I were to answer his question in the terms in which he put it. The House must understand that this review would have been unnecessary if the previous Government had done their job.

Sir T. Beamish: Which has the higher priority in the Minister's mind—the proper carrying out of our treaty obligations and the full defence of this country's legitimate interests, or the undoubted promise made to the Left wing of the Labour Party to reduce Defence Estimates by at least £250 million?

Mr. Healey: I will treat that question with more than the contempt which it

deserves. The Government are determined to provide the men and women serving in their military forces with the tools of their job, something which was not achieved by the previous Government in spite of spending £20,000 million over 13 years.

Mr. Soames: Whatever the Minister may say from the Box, there is a firm impression that the reason the Government are taking so long on this review is that their coat tails are being hung on to by the Left wing of the Labour Party.

Mr. Manuel: How silly can you get?

Sir C. Osborne: Ask yourself.

Mr. Speaker: Order. In the interests of the House, I cannot tolerate the interchange of absurd insults from one side of the House to the other. We cannot get on with Questions unless hon. Members help me in this matter.

Mr. William Hamilton: On a point of order. May I point out that there have been three successive supplementary questions asked from the other side of the House?

Mr. Speaker: If the hon. Member thinks that that helps me, I remind him that I regard it as the responsibility exclusively of the Chair to decide who asks supplementary questions. Let us get on.

Aircraft (Nuclear Strike Capacity)

Mr. McMaster: asked the Secretary of State for Defence whether Great Britain will have any new aircraft available before 1970 with a nuclear strike capacity.

Mr. Healey: A decision on the type and numbers of any new strike aircraft must await the outcome of the current Defence Review.

Mr. McMaster: Is the Minister satisfied that following the hasty cancellation of the TSR2 we shall have before 1970 an effective aircraft with a nuclear capacity capable of following contours and of getting beyond the enemy's radar defence?

Mr. Healey: I am quite satisfied that the defence review will ensure that we shall have aircraft adequate for all our tasks.

Mr. Orme: Will the Minister bear in mind when making this review that to replace the TSR2 with the American F111A would be an excessive cost to this country, would not benefit this country and would make a farce of the cancellation of the TSR2?

Mr. Healey: I remind my hon. Friend that even if the Government took up the maximum option permitted to them under the arrangements with the United States for the possible purchase of the F111A, this would save the country £300 million over the next 10 years compared with the TSR2. I hope that my hon. Friend does not regard £300 million as a nugatory saving.

Mr. Soames: The Minister will appreciate that this Question refers only to aircraft available before 1970 which I take it does not include the F111A. Will he confirm that the Phantom will have a nuclear capability?

Mr. Healey: If the option is taken up the F111A will be on squadron service before 1970.

Mr. Frank Allaun: Is the Minister aware that if the Government cut their military coat according to their cloth they will receive widespread public support? If it were right to cut the TSR2, as we believe it was, is it not even more right to stop the F111A, because that, too, involves our international balance of payments?

Mr. Healey: I believe that the job of the Government, and in particular of the Secretary of State for Defence, is to ensure that our forces have the equipment required to carry out the job with which the nation has entrusted them. This I intend to do.

Mr. Soames: I should be grateful if the Minister would answer the question whether the Phantom will have a nuclear capability.

Mr. Healey: The Phantom will be capable of carrying nuclear bombs. Whether it is required to do so will depend on the outcome of the defence review.

Military Aircraft Requirements

Mr. McMaster: asked the Secretary of State for Defence if he will conduct an inquiry into the efficiency of existing

machinery for formulating British military aircraft requirements.

Mr. Healey: No, Sir. I see no necessity for such an inquiry.

Mr. McMaster: Is the Minister satisfied, following his cancellation of the TSR2 and the HS681, that the long-term planning is being properly looked after, bearing in mind that it takes more than five years between the formulation of a requirement and an aircraft coming into service?

Mr. Healey: Yes, Sir. I am very well satisfied. I am afraid that I was not so satisfied six months ago. One of the reasons why we made the agreement with the French Government for the production of two aircraft, one of which will not be available to the British Services for about 10 years, is that we are well aware of the long lead in time between the definition of a project and the production of the weapon concerned.

Mr. Soames: In formulating a military aircraft requirement, such as that with the French Government, will the Minister also consult the German Government? Has he consulted the German Government about the two aircraft ordered in conjunction with the French?

Mr. Healey: I had long talks with Herr von Hassel on the question of consultation with the German Government two months ago, and I had further talks with him in Paris during the last two days. I made that clear to the House when I announced the terms of the understanding for an agreement on joint production with the French Government. It is the experience of all British Governments, and of all Governments in the world, that it is very difficult to reach an agreement on the characteristics of an aircraft between more than two Governments. It is appropriate after a certain stage, when a work statement can be produced, to consult other Governments on participating in development and production, and this we intend to do.

Mr. Lubbock: I apologise to the right hon. Member for Bedford (Mr. Soames) for a back-bencher muscling in on Question Time, but may I ask the Minister what rôle the present Government foresee for the Transport Aircraft Requirements Committee and whether he will


investigate with our European allies the possibility of widening the scope of the body so that it may act as a Transport Aircraft Requirements Committee for all the European countries with which we are associated in N.A.T.O.?

Mr. Healey: I should be grateful if the hon. Member would put down a question about the Transport Aircraft Requirements Committee. I can assure him that we are in continuous consultation with all allied Governments about all items of equipment which may, even with adjustment, be held to meet a common need.

Costing Methods

Mr. Sheldon: asked the Secretary of State for Defence if he will improve the system of costing in his Department.

Mr. Healey: Costing methods are constantly under examination in my Department and everything possible is being done to improve them.

Mr. Sheldon: Is my right hon. Friend aware that the directly attributable cost of our forces east of Suez which I received from his Department was given at £320 million and that I have been unable to obtain from him the cost of our overheads despite repeated Questions? Is he further aware that these, together with the costs themselves, are unlikely to be less than £500 million, a figure of extreme importance? Is he still further aware—

Mr. Speaker: Order. It is time that the House realised that these questions related to the Minister's state of mind are out of order. Whether the Minister is aware or whether he is not aware merely relates to that. If the hon. Member wants action taken he should ask a question about that.

Mr. Sheldon: Will my right hon. Friend ensure that accurate costings are made available to the Government so that they can make accurate decisions based on those accurate costings?

Mr. Healey: We do our best in this matter. I must explain to my hon. Friend that it is a great mistake to imagine that one can attribute overheads in a defence budget in the same way as in a business. The purpose of attributing overheads in defence costings is to try to

find out what will be saved if one cancels a certain task or commitment. The purpose of attributing overheads in a business is to fix an artificial profit target for a department in that business. One cannot assume, for example, that a slice of our pension expenditure has any relationship to any particular commitment. I think that if my hon. Friend pursues this matter with me and my officials he will finally come to recognise that there is this fundamental difference between the purpose of attribution in an operation like a defence budget and in a normal commercial business enterprise.

Mr. Hooson: Would the right hon. Gentleman give an assurance that the costing system has been improved since the former Government were in office, particularly in regard to the Ferranti affair?

Mr. Healey: Yes, Sir. I can give that assurance. I remind the hon. and learned Gentleman that when the Public Accounts Committee investigated the cost of foreign bases two years ago it was unable to get any figures whatever from the Ministry of Defence as to their cost. This is no longer the case.

Mr. Rankin: On a point of order. I wonder if you would give us a little more information on the Ruling which you just gave about hon. Members asking the Minister if he is aware or is not aware as reflecting on his state of mind, Mr. Speaker? Is it not common form in the House that every hon. Member who asks a question is supposed to initiate it by asking if the Minister is aware or is not aware? If we must follow that form in asking questions, are we indeed reflecting on the Minister's state of mind?

Mr. Speaker: I am troubled about the state of this. To ask whether a Minister is aware of something may be a method, fairly improper, of introducing facts on which the purpose of the question is founded; namely, to ask for information or to initiate action. However, a question devoted to asking about a Minister's state of mind in regard to knowledge is wholly out of order. Yesterday we had two or three such questions which consisted of nothing but asking whether the Minister was aware. That occupies the time of the House and I should be


pleased if the House got rid of the practice.

Mr. Dell: Is my right hon. Friend saying that if there were a cut in commitments, for example east of Suez, there would be no cut in the defence overheads of his Department?

Mr. Healey: Of course I am not saying that. In fact, we do attribute overheads to the cost of commitments east of Suez, but my hon. Friend earlier suggested that it would be possible to attribute all overheads to specific geographical commitments. That is not the case. To give an example, my personal Ministerial salary is an overhead, but I would consider that it should be increased rather than reduced if we cut our commitments.

Gibraltar (Spanish Frontier)

Mr. Lubbock: asked the Secretary of State for Defence what instructions have been given to the officer commanding in Gibraltar regarding the crossing of the Spanish frontier by Service men.

Mr. Healey: None, Sir.

Mr. Lubbock: Has not the Minister had any information from the officer commanding in Gibraltar about the insults to which our boys are being subjected? Will he bear in mind that Service men spend a great deal of money across the border in Spain and that, if the Spaniards want to hit at us, this is one way of getting back at Franco where it hurts, and that is in his pocket?

Mr. Healey: My experience of the British Service man is that he takes a fairly robust attitude to insults. Our Service men, if they go to Spain for recreation, do so because they enjoy it; and I would not propose to interfere with their opportunities of recreation.

Surplus Goods (Public Auctions)

Mr. Dodds: asked the Secretary of State for Defence in connection with the disposal of Government surplus goods by public auction since 1st January, 1946, when it was decided that the usual practice of giving the individual prices realised when requested should be altered; and, since this information is available to all at the public auctions, if

he will state the reasons for this change of policy.

Mr. Mulley: I would refer my hon. Friend to the Answers my hon. Friend the Under-Secretary of State gave him on 5th April. Whereas those who get prices at an auction can see the condition and value of the goods being sold, it could be misleading to give prices without a sight of the goods.

Mr. Dodds: That is not the point. Is my right hon. Friend aware—[HON. MEMBERS: "No."]—that the Answers to the Question on the date he mentioned were misleading and that for years when I have asked for the prices to be given they have been given? Is it not accurate to say that this is the policy that was followed before and that the policy of not giving them has been initiated by this Administration? What is the sense of withholding from the House information as to the prices obtained when all the dealers and the public at the auctions know the prices? I urge my right hon. Friend to give this information when it is sought, just as it has been given since 1946, or otherwise to explain why there has been a change of policy.

Mr. Mulley: I understand that it was never the practice for the War Office to issue these prices as a regular course. My hon. Friend has from time to time been given prices and I have told him and other hon. Members that we will always give them these figures. However, wide publicity of the prices realised for various lots without anyone being able to assess the condition of the goods concerned would not be commercially justifiable and, I believe, would mislead the public.

Mr. Dodds: Owing to the unsatisfactory nature of my right hon. Friend's Answer, I give notice that I will raise the matter on the Adjournment. After all, the Tories did it. Why cannot we?

Defence Purchases

Mr. Marten: asked the Secretary of State for Defence what is the estimated cost in foreign currency over the next five years of United Kingdom defence purchases.

Mr. Healey: As I explained in my Answer on 28th April, it is not yet possible to make an estimate of the total cost in foreign currency for the years ahead. Purchases of equipment to which we are already committed will cost about £240 million in foreign currency during the next five years.

Mr. Marten: When the Secretary of State takes action to try to make further cuts in this expenditure will he bear in mind the fact that many hon. Members, including many hon. Gentlemen opposite, are becoming extremely concerned at the degree of dependence of this country on the United States aviation industry. Will he bear this in mind from the point of view of both our balance of payments and the defence of Britain?

Mr. Healey: Yes, Sir. This was one of the factors which we had in mind when we made the agreement with the French Government for the joint production of two military aircraft.

Mr. Soames: Would the right hon. Gentleman say what sales of military equipment there have been to offset against this expenditure of £240 million across the exchanges?

Mr. Healey: Yes, if the right hon. Gentleman will put down a Question.

Mr. Goodhew: How much foreign exchange expenditure has been committed on orders already placed, in addition to the £240 million which must be paid in the next five years?

Mr. Healey: I do not quite understand the point of that supplementary question. We have committed £240 million over the next five years and that is the extent of the commitment so far. It may well be that we shall take up further options permitted to us under various understandings. That will lead to increases, which I will give to the House in due time.

Mr. Dell: asked the Secretary of State for Defence what preference his Department gives in making purchases to suppliers with good export records.

Mr. Healey: None, Sir. Our general object is to find the cheapest equipment compatible with operational needs, so orders are normally placed, as a result

of competitive tendering, with firms offering to meet the technical and delivery requirements at the most economical prices.

Mr. Dell: In view of the importance of exports to the nation, and the particular importance of covering the defence costs of my right hon. Friend's Department, especially those incurred across the exchanges, will my right hon. Friend see whether any use can be made of the very large purchasing power of his Department to encourage suppliers to press forward with exports to a greater extent than now?

Mr. Healey: Of course I will investigate it, but I think that my hon. Friend, with his deep knowledge of economics, would not wish me to buy more expensive equipment than I otherwise would for that purpose. Secondly, he will recognise that there could even be a danger to exports in this by diverting export production to the needs of the forces.

Mr. Thorpe: Is the Secretary of State aware that his reply was the expression of the purest free trade doctrine, which will get wide support from many quarters of the House?

Mr. Healey: If the hon. Member's agreeable words are followed by action in the Division Lobby, I think that all of us on this side will be grateful to him.

Sir C. Osborne: Would not the right hon. Gentleman agree that companies that will make good and acceptable goods for the home market will also make good and acceptable goods for the export market; and that it would be unwise to base his policy on export records when buying for his own Department?

Mr. Healey: That is another economic generalisation, and I am afraid that my confidence in persuading the hon. Gentleman to follow me into the Division Lobby is not sufficient to justify my agreeing to it.

Sandhurst (Cadets)

Mr. Rhodes: asked the Secretary of State for Defence what were the percentages of cadets accepted into the Royal Military Academy, Sandhurst, in the years 1962, 1963 and 1964, respectively, who were formerly educated in Headmasters'


Conference Schools, and State secondary schools, respectively.

Mr. Allason: asked the Secretary of State for Defence what were the percentages of cadets applying for admission to the Royal Military Academy, Sandhurst, in the years 1962, 1963 and 1964, respectively, who were formerly educated in Headmasters' Conference Schools and State secondary schools, respectively.

Mr. Mulley: For applicants to the Regular Commissions Board the figures are approximately 53 per cent. for Headmasters' Conference schools and 47 per cent. for State secondary schools for the financial year 1962–63, 48 per cent. and 52 per cent. for 1963–64, and 48 per cent. and 52 per cent. for 1964–65. For cadets accepted into the Royal Military Academy, they are 60 per cent. and 40 per cent., 59 per cent. and 41 per cent., and 63 per cent. and 37 per cent. The figures for applicants to the Regular Commissions Board do not include boys who 20 to the R.M.A. from Welbeck or as Army Scholars.

Mr. Rhodes: Would my right hon. Friend bear in mind that that Answer, together with the Written Answer of 30th March to my hon. Friend the Member for Doncaster (Mr. Harold Walker), indicates that 61 per cent. of the entrants into Sandhurst come from public schools, compared with 42 per cent. into the Royal Naval College and only 25 per cent. into the Royal Air Force College? Why should the Army stand relatively aloof from the tendency to break down social snobbery and class barriers? Cannot the northern grammar schools produce first-class officer material for the Army if the Army really wants to find it?

Mr. Mulley: I think that my hon. Friend would be wrong to approach this matter from the point of view of the particular schools from which the boys come. The Army is very glad to have good candidates from any type of school. I should be grateful if my hon. Friend would, as I have suggested to him previously, come and have a look at the procedure employed by the selection board. We are pleased with the increase of 20 per cent. in the last year of applicants from northern schools. We do all we can by way of advertising, visits of lecturers and school liaison teams to

schools, most of them State secondary schools, and we should be very glad to see an increase both in applications and entries from the State system.

Captain Litchfield: Does the right hon. Gentleman agree that the object is to get the best possible officers, irrespective of where they are educated?

Mr. Mulley: That is the object, but I understand that there is a feeling that boys from the State grammar schools do not get possibly the full consideration that they should. We are examining this matter and I will be grateful for help from any quarter to get more grammar school boys into the Army.

Mr. Harold Walker: Does my right hon. Friend recall the recent correspondence I had with him over a disillusioned constituent of mine who had been rejected? Will he bear in mind the view expressed by my constituent that at the selection board more importance appeared to be given to people with the right social background than to any other kind of talent?

Mr. Mulley: I am satisfied that the tests are not directed to the social background of the candidates. At the same time, it is extremely difficult to give information about the rightness or incorrectness of a decision in an individual case.

H.M. Ships, West Indies Station (Post)

Mr. Hooson: asked the Secretary of State for Defence why there are long delays in delivery of post to ships stationed in the West Indies.

Mr. Reynolds: I have no evidence that, in general, deliveries are unsatisfactory, but I regret that mail for H.M.S. "Rothesay" was delayed during the latter part of March.

Mr. Hooson: Is the right hon. Gentleman aware that this delay was occasioned primarily by confusion of location particulars? Is not this inexcusable in peace time and will he offer a reason for the confusion?

Mr. Reynolds: I am sorry to say that this was an error on our part at the Home Postal Depot. Steps have been taken to try to make sure that it does not happen again.

Army and R.A.F. (Housing Loan Scheme)

Mr. John Hall: asked the Secretary of State for Defence if he will introduce a housing loan scheme for the Army and Royal Air Force on similar lines to the scheme to be introduced for the Royal Navy.

Mr. Mayhew: Not at present.

Mr. Hall: Having searched vaguely in my mind for a suitable alternative phrase, may I ask whether the Minister is aware that his Answer will be received with very great disappointment? Can he say why a scheme which offers to the Navy loans on favourable terms to leading seamen and above, should not apply equally to both the Army and the Royal Air Force?

Mr. Mayhew: There is more family separation and moving about in the Navy than in the Army and Royal Air Force, and I therefore think that we have a special interest in trying to get a stable family base for our wives and families—an even greater interest than the other Services. But it is always open to the Army or the R.A.F. to apply for schemes.

Mr. Hall: I understand that it is intended that this scheme should also apply to the Civil Service. Is the hon. Gentleman suggesting that the Civil Service has greater need for this kind of facility than either the Army or the Royal Air Force?

Mr. Mayhew: I cannot speak for the Civil Service; I only repeat that the Army and the Royal Air Force can put in for a scheme if they wish.

Mr. Shinwell: Was not a £40 million housing loan scheme promoted by the Labour Government in 1947, and why has it been suspended?

Mr. Mayhew: This is a different scheme. This will enable a naval rating to bridge the gap between a building society loan and the cost of his house against his terminal grant. I do not think that there has been a scheme like this before, and we wish it success.

H.M. Ships (Loss by Accident)

Mr. Hector Hughes: asked the Secretary of State for Defence how many and which of Her Majesty's ships have been lost by accident at sea during the last 10 years, owing to their design, construction and manner of loading; and what progress has been made in these respects to protect Her Majesty's ships from such accidental catastrophes.

Mr. J. P. W. Mallalieu: The answer to the first part of the Question is one—H.M. Submarine "Sidon", almost exactly 10 years ago, on 16th June, 1955. She sank after a torpedo had exploded prematurely. The accident was due to incorrect loading of the torpedo, and shortcomings in its design. This type of torpedo was not used again until several modifications and alterations had been carried out.

Mr. Hughes: Is my hon. Friend aware that these incidents demand urgent technical investigation to prevent recurrence, because they involve loss to the Navy? Can he say what steps are being taken to prevent a recurrence?

Mr. Mallalieu: Perhaps my hon. and learned Friend did not hear the reply. It is not "incidents", in the plural, but "incident"—one; and immediately this happened, modifications and alterations were made.

Canberra Aircraft (Replacement)

Sir J. Eden: asked the Secretary of State for Defence what was the military requirement for which the TSR2 was developed; whether this requirement still exists; and what aircraft will now be provided to meet it.

Mr. A. Royle: asked the Secretary of State for Defence if the range and bomb capacity of the Buccaneer is satisfactory for its operational tasks as a Canberra replacement both in Europe and east of Suez; and if he will make a statement.

Mr. Healey: The TSR2 was under development as a Canberra replacement in order to give the Royal Air Force a continued long-range tactical strike and reconnaissance capability. This requirement still exists, but a precise


definition of the tasks of the Canberra replacement will not be possible until a later stage of the current defence review. The subsequent decision as to how the R.A.F.s requirement will be met will then depend on what type or types of aircraft can best and most economically discharge these defined tasks.

Sir J. Eden: Is it not the fact that for the future the reconnaissance rôle for which the TSR2 was designed will be of very particular importance, and in order to discharge this rôle in the likely state of defences, the ability to follow the contours of the ground must be available to the aircraft? If the right hon. Gentleman is to await the outcome of his review before making any decision on what aircraft is to take the place of the cancelled TSR2, what is the purpose of his holding an option on the American F111A?

Mr. Healey: To answer the second half of the hon. Gentleman's supplementary question first, the purpose of taking out the option is to enable us, if we require an aircraft with the capability of the F111A, to buy it, and we shall take the decision on whether we take up the option by the end of the year.
On the earlier part of the hon. Gentleman's question, he will be well aware that although in general terms what he says is correct, in practice the question is what are the targets and the likely defences those targets will be covered by, and what are the bases from which the aircraft will operate on land or sea. The answer to those questions depends on a careful study of commitments. That study has not yet been completed, but it will be completed in time to take out the option on the F111A if we so desire.

Mr. A. Royle: Does the right hon. Gentleman realise that all officers and men of the Royal Air Force are very worried about the Government's dilatory attitude to the weapons system? Can he say when we can expect a firm decision in the matter of the Canberra replacement, and, when that decision is taken, will the right hon. Gentleman give an assurance that the aircraft will fulfil the tasks that the Air Staff consider necessary?

Mr. Healey: Of course, I give the latter assurance. I can assure the hon. Gentleman that a decision will be taken by the end of this year. As to the first part of the supplementary question, my experience is that R.A.F. aircrew and the R.A.F. generally are absolutely delighted that the present Government have guaranteed to meet their needs in so many respects so quickly, and are going to meet their needs years earlier than there was any chance of meeting them under the aircraft programme of the previous Administration.

Mr. Rankin: Can my right hon. Friend say whether any of the unique and almost revolutionary features of the TSR2 will be incorporated into other aircraft?

Mr. Healey: Yes, Sir. I have already told the House that, for example, the reconnaissance pack developed for the TSR2 is likely to be introduced into a number of aircraft in the reconnaissance rôle.

Mr. Lubbock: In this review will the right hon. Gentleman consider to what extent the high altitude reconnaissance rôle of the Canberra can be met with satellites carrying high precision cameras? What steps are the Government taking to ensure that we do not get left out in this field?

Mr. Healey: One considers to what extent these rôles can be met by satellites, but I would point out that we are talking here about tactical strike and reconnaissance, and nobody has yet come up with any idea for using satellites in this rôle.

Military Aircraft (Anglo-French Memorandum)

Sir J. Eden: asked the Secretary of State for Defence if he will make a statement about progress made with the French in the joint development of military aircraft requirements.

Mr. Healey: I would refer the hon. Gentleman to the statement that I made to the House on 17th May.

Sir J. Eden: Could the right hon. Gentleman emphasise that there is not likely to be any damage caused to this new agreement with the French were he to take up the option on the F111A?
Secondly, could the right hon. Gentleman confirm that the swing-wing aircraft for development in the latter part of the 1970s will have a nuclear bomb-carrying capacity?

Mr. Healey: On the first question, I can assure the hon. Gentleman that I discussed the question in great detail with M. Messmer, the French Defence Minister. He is aware, as hon. Gentlemen opposite ought to be, that we shall need a Canberra replacement in the next three or four years, whereas the swing-wing aircraft that we are planning to develop with the French Government will not be available for the Royal Air Force for about 10 or 11 years. It is a different generation of aircraft, and its precise capabilities have not yet been defined by the two Governments.

Mr. Dell: Can my right hon. Friend say whether any decision has yet been made by his Department to purchase the F111A?

Mr. Healey: Yes, of course I can, Sir.

Colchester Garrison

Mr. Buck: asked the Secretary of State for Defence if he will now announce a timetable for the reorganisation and rebuilding of the Colchester Garrison, for which plans have already been published.

Mr. Reynolds: Much of the Garrison has been rebuilt already. I expect the rest of the programme to be completed by 1971–72.

Mr. Buck: Would the hon. Gentleman be prepared to issue a timetable for various stages of the future development of the Garrison? Does he realise that this is particularly important because further development involves handing back some land for civilian purposes? At the moment there is very little knowledge of the timetable and this is causing despondency among some of the military personnel involved.

Mr. Reynolds: We hope to be able to sell some land, probably to the local authority, when the programme has been completed, but until it has been completed the land in Colchester which will eventually be surplus to Army needs will not be available. We shall keep in touch

with the local authority about the development of the programme.

Territorial Army Centre, Colchester

Mr. Buck: asked the Secretary of State for Defence, what rôle he envisages for the new Territorial Army Centre soon to be completed in Colchester; and if he will make a statement.

Mr. Reynolds: The Centre, the building of which is expected to be completed by the end of this year, is designed to replace two old and inadequate Territorial Army Centres in Colchester and will accommodate 14 T.A. units.

Mr. Buck: Does not the hon. Gentleman realise that if either he or his right hon. Friend do not soon make a statement about the future of the Territorial Army there will be no soldiers to use this brand-new Centre? Does he not realise also that it is important that he should take up the invitation at the end of the Question to make a statement? The whole of the Territorial Army who are to use this new Centre are in a state of considerable despondency because they feel that their whole future is in jeopardy. This is a very important matter.

Mr. Reynolds: The hon. Gentleman obviously has not been in close contact with the Territorial Army in the last few months; otherwise he would not make such statements about the state of their morale. The morale of the Territorial Army is as high as it has ever been, and recruitment at the moment, as I said in answer to a previous Question, is going quite well.

Armed Services (Pensions)

Mr. Onslow: asked the Secretary of State for Defence when he now expects to announce the results of his review of Armed Services pensions.

Dr. Bennett: asked the Secretary of State for Defence what progress he has made towards achieving parity in Service pensions regardless of date of retirement.

Mr. Lubbock: asked the Secretary of State for Defence when he expects to make arrangements to ensure that Armed Forces pensions will keep their full purchasing power instead of being eroded by inflation.

Mr. Allason: asked the Secretary of State for Defence whether he will reduce the age at which increases in Service pensions operate from 60 to 55 years.

Mr. Mayhew: We are considering these and other proposals. I cannot yet say when a statement will be made.

Mr. Onslow: I do not think I need ask the hon. Gentleman whether he is aware that that is not a very satisfactory reply. May I ask him what representations he has received concerning the cynical disregard by the present Government of the pledge given on their behalf by the hon. and learned Member for Northampton (Mr. Paget) before the election, and how much longer he is going to wait before making some effort to relieve these pensioners of the burden of increased taxation and increasing inflation which the present Government have placed upon them in the last six months?

Mr. Mayhew: The major part of the burden was placed there by the preceding Government. I cannot accept any of the implications in the first part of that supplementary question. I am not in a position to make a statement yet.

Dr. Bennett: After 7½ months in office—[Laughter.]—which was been far more burdensome to the country than 13 years of Tory Government—surely the present Administration ought to be prepared to come clean with an answer? Is it a fact that the present Colonial Secretary gave his party's pledge to the officers and men retired from the Services that they agree with the principle of parity? This putting off of the decision is surely unworthy of any Government, even the present one.

Mr. Mayhew: There is no question of putting off a decision. This is a difficult question and we are naturally having to give it very careful consideration. The only thing certain about previous attitudes of the parties is that the Conservative Party were opposed to parity from beginning to end.

Mr. Shinwell: Can my hon. Friend give an assurance that the present Government, in their review of the Armed Services pensions issue, will not think it

is wrong to come to a satisfactory decision because the previous Administration failed to do so? Is my hon. Friend aware that in the last seven or eight years hon. Members in all parts of the House sought to bring about a revision of the scheme and failed to do so, because the previous Tory Administration refused to do anything?

Mr. Mayhew: That is completely right. If the present Government find it possible to help these pensioners we can be sure that the Opposition will vote against the means for paying them.

Sir A. V. Harvey: Will the hon. Gentleman confirm that his hon. and learned Friend the Member for Northampton (Mr. Paget), as spokesman for the Opposition in Army matters, gave a very definite pledge in reply to a questionnaire from the Officers' Pension Society? Why are the Labour Government now going back on these pledges which they gave?

Mr. Mayhew: We are going back on no pledges that we have given. The Government are bound by their election programme which does not commit the Government either for or against the implementation of parity at this time.

Sir G. Nicholson: Is not the truth that this matter is far too serious for party politics and that it should be the concern of all parties? Is it not time for any Government to treat old and faithful military servants of the Crown fairly? Is not the hon. Gentleman aware that this issue calls for a larger-minded approach than mere party controversy?

Mr. Mayhew: I agree. There are real hardships being suffered not only by Armed Service pensioners but by all public service pensioners. This is the point of our review. If the matter can be taken out of party politics, well and good. This is a matter for both sides, and not one.

Hospital, Burderop Park

Mr. Francis Noel-Baker: asked the Secretary of State for Defence to what purpose the hospital at Burderop Park will be put following the withdrawal of the United States Air Force; and in, coming to his decision, what consideration he gave to the medical needs of Swindon.

Mr. Mulley: We have no further need for the hospital and I am at present discussing with my right hon. Friend the Minister of Health the possibility of its being used by the National Health Service. As my hon. Friend is aware the property is held on lease and any transfer would be subject to negotiations with the owner of the land.

Mr. Noel-Baker: May I take it from the reply that it is now up to my right hon. Friend the Minister of Health and the regional hospital board to decide whether or not they want these premises? Would my hon. Friend like to say a word of thanks to the United States authorities who I understand have made a generous offer of equipment to the British medical authorities should they need it?

Mr. Mulley: I was not aware of the offer by the United States Government, but I am sure that all hon. and right hon. Members would like to express their appreciation of this donation. It is the case that the future of the hospital now rests with my right hon. Friend the Minister of Health and, for our part, we will do all we can, if my right hon. Friend decides that he wants it for a Health Service hospital, to go through all the formalities and get legal permission.

FAMILY DOCTOR SERVICE

Mr. Richard Wood: (by Private Notice) asked the Minister of Health whether he will make a statement on his recent discussions with the British Medical Association on the family doctor service.

The Minister of Health (Mr. Kenneth Robinson): I am glad to say that a substantial measure of agreement has been reached with the profession's negotiating team on proposals covering the particular matters on which the profession wished for early assurances. As I promised in my reply to my hon. Friend the Member for Glasgow, Govan (Mr. Rankin) on 31st May, copies of the joint Report of the discussions are now available in the Library.
I understand that following meetings of the General Medical Services Committee and the Council of the British Medical Association the Report will be considered by the Conference of Local Medical Committees and the Representa-

tive Body of the British Medical Association later this month.
I look forward to their endorsement of the proposals and to further fruitful discussions on the matters still outstanding. The first of these will be held tomorrow. I have, of course, made it clear that the proposals cannot be implemented while the question of withdrawal from the Service remains in issue.

Mr. Wood: May I thank the right hon. Gentleman for placing copies of the report of the discussions in the Library? We welcome the progress which seems to have been made on the question of finance for practices, ancillary staff and the reduction of certification, but I should like to ask the right hon. Gentleman three questions. When does he hope to be able to introduce legislation to set up the corporation? When will the proposals for ancillary help begin to be operative, and in this connection to what extent is the threat of withdrawal from the Service still an issue between the Government and the profession?
Lastly, when progress in the future has been made on the revision of the contract and the replacement of the pool system, will the right hon. Gentleman undertake to do his best to try to make a statement to the House before that contract has been referred for pricing to the Review Body?

Mr. Robinson: I am grateful to the right hon. Gentleman for his welcome to the statement and the progress which we have made so far. As for legislation for the independent Finance Corporation for practice premises, all I can say is that it will be through in time at any rate for this to be implemented by 1st April next, but, subject, of course, to the Parliamentary time-table, it need not await that date.
As for the ancillary scheme, I have made it clear that provided the withdrawals from the Service are no longer in issue I am prepared to consider proposals from the profession to implement this at an earlier date and they have suggested 1st October. It is difficult for me to say how much this matter is in issue at the moment, because the two bodies considering the Report so far have come to differing conclusions on this and the


matter will be resolved at the representative meeting and the Conference of Local Medical Committees later this month.
I will do my best to meet the right hon. Gentleman's third point. It is a little unusual for negotiations of this kind to be reported to the House in midstream, so to speak, nevertheless, subject to the profession's agreement and provided that Parliament is sitting and this does not mean any delay in referring the contract to the Review Body, I shall be glad to consider sympathetically the right hon. Gentleman's suggestion when we come to the end of the discussions on the contract.
The right hon. Gentleman asked about the date. I should have thought that probably late autumn would be about the time that we could come to the end of these discussions.

Sir M. Stoddart-Scott: Am I right in assuming that a decision about the remuneration of doctors cannot be made until a recommendation of the Review Body has been made known to the Minister? When is that likely to be and when does the right hon. Gentleman think that doctors will get more appropriate pay for the hard work which they do?

Mr. Robinson: It is a fact that the level of remuneration can be known only when the contract has been finally decided in the negotiations, submitted to the Review Body and the Review Body's report has been presented to the Prime Minister. The hon. and gallant Gentleman asked when this would take place. I have said throughout these discussions that I had every hope that as long as we made reasonable progress, and I think that we have done so far, the whole new contract with the new methods of remuneration should be ready for introduction by 1st April next year.

Dr. Wyndham Davies: I think that back-benchers on both sides of the House will regret that the Minister made this statement to the Press before he gave it to the House today. [HON. MEMBERS: "Question."] Will the right hon. Gentleman stop reiterating that the doctors must withdraw their withdrawal notices? [HON. MEMBERS: "Why?"] Because this is the only hold they have—[HON. MEMBERS:

"Oh."]—to make sure that the Government stick to their promises in relation to an important profession.

Mr. Robinson: As I told the right hon. Member for Bridlington (Mr. Wood), it is unusual to report interim stages of negotiations to the House, but, as I undertook, I have made copies of the Report available in the Library simultaneously with its publication; and publication had to be synchronised with the circulation of the Report to members of the hon. Gentleman's own profession at the request of the negotiators.
As for my insisting, before implementing the proposals, on the withdrawal of the notices, I think that this is generally regarded as a perfectly reasonable request. Perhaps I can tell the hon. Member that during the negotiations there has been virtually no reference whatever to these withdrawal notices and that they have not been a weapon in the negotiations at all.

Mr. Shepherd: Is the right hon. Gentleman aware that many of us who want to see a satisfactory solution of this problem think that he is being generous in the way in which he is negotiating under duress and that we hope that the withdrawal notices will be swept aside so that a final conclusion may be reached?

Mr. Robinson: I am grateful to the hon. Gentleman.

COMMITTEE ON SOCIAL STUDIES (REPORT)

The Secretary of State for Education and Science (Mr. Anthony Crosland): With permission, Mr. Speaker, I wish to make a statement.
The Report of the Committee on Social Studies is being published today.
The Government wish to express their gratitude to Lord Heyworth and the members of the Committee for the time and effort which they have devoted to a thorough survey of a wide field, and for the care and thought with which they have prepared their recommendations.
The social sciences have an important contribution to make to the development of a progressive society, and to the solution of the social problems of modern life.
The Government accept in principle the main recommendation of the Committee that there should be a Social Science Research Council, to be appointed by the Secretary of State for Education and Science.
They accept that there is considerable scope for stronger support and better co-ordination of research in the field of social studies, and they believe that the Committee is right in concluding that this could best be done with the help of a Social Science Research Council, while also maintaining support through the University Grants Committee and, where appropriate, Government Departments.
This proposal raises a number of detailed issues which will require further consideration, including the new Council's terms of reference, its scope and membership, and the arrangements for budgetary control. Moreover, the Government, while accepting that further provision should be made for research in the field of urban planning, do not believe that the Committee's proposal for a joint board of the various research councils would be satisfactory. They are considering what provision should be made for this purpose.
The Government accept that some increase in financial support for social science research is desirable. Before committing themselves to detailed plans, however, they propose to await the advice of the Council itself. The scale on which additional resources can be made available will have to take into account other claims on our resources.
The Government will not at this stage be expected to comment in detail on the various other recommendations of the Committee. But they recognise the important role which social scientists can play in the formulation and execution of policy, and they intend to ensure that Government Departments are so organised and staffed that information and advice from social scientists are available on an adequate scale.

Sir E. Boyle: While we on this side are very glad that the Government have accepted the recommendation to set up the Social Science Research Council, will the right hon. Gentleman not agree that his statement would have been considered by the party opposite both flat

and disappointing if it had been made by this side of the House?
I have three questions to put to the right hon. Gentleman. First, can he say a little more about finance for this Council, considering that Lord Hayworth and his Committee have asked only for an extra £150,000 in the first year on top of a total social science research expenditure of £6½ million for our last year of office, 1964–65?
Secondly, will he state the Government's attitude to one important recommendation, No. 17, that there should be more social scientists in Government Departments where appropriate?
Thirdly, and very important, could the right hon. Gentleman assure us that he will see that there is constant co-ordination between this Research Council and the University Grants Committee in view of the very large amount of relevant work which will increasingly be done in our expanding universities?

Mr. Crosland: I was slightly taken aback by the right hon. Gentleman's introductory remark. I have searched our election manifesto with great care and I find no reference to any policy on social science research councils, so I am not absolutely clear what he has in mind there.
First, finance. Clearly, it would be quite irresponsible, until the Report has been studied in great detail and until the Council has advised, to take any definite view as to the exact amount of money which ought to be granted to the Council.
The answer to the right hon. Gentleman's second question, as I think my statement implied, is that we certainly wish to see more social scientists employed in Government Departments.
On the question of co-ordination with the U.G.C., again, as I think my statement implied, there must be the closest possible co-ordination.

Mr. Dalyell: Why has the concept of a joint board been rejected?

Mr. Crosland: Broadly on these grounds, that, if one takes the existing research councils, it is not absolutely clear that any of them have a considerable contribution to make as they are now organised to this particular field


of urban planning. It did not seem to us that these four bodies alone, or even five if one takes into account the new Social Science Research Council, would be the bodies to do this particular type of research. There is not all that much in common between, say, the Agricultural Research Council and the problem of urban planning.

Mr. Grimond: I am interested in recommendations Nos. 18 to 23, concerning social scientists available to Government Departments. Does the right hon. Gentleman think that these recommendations go far enough? Surely, social scientists should now be available at the highest level in Government Departments, almost on the same scale as economists. I think that there are 22 economists in the Ministry of Overseas Development. How many social scientists are there?
Will the right hon. Gentleman use his influence to see that other Ministries, such as the Scottish Office, which will be deeply concerned, have adequate representation of the social sciences, including practical social science, bringing in people such as the county development officers, many of whom are trained in social science?
Will he ensure that such people are available to the new development bodies such as the Highland Development Board and the other regional bodies? It is most important that their services should not be lost and that they should be treated as at least as important as economists.

Mr. Crosland: I agree in principle entirely with what the right hon. Gentle-man said. As to the exact number we shall need and in what places, we must simply look at this and study the question over the next few weeks.

Mr. Freeson: Will my right hon. Friend accept that, in view of the great need to associate the field of social research with the field of urban town planning and development, bearing in mind the gap which exists over wide fields at the moment in this aspect of the matter, it would be desirable to incorporate studies of urban planning and renewal in the work of the proposed Council?

Mr. Crosland: This is what is under consideration. I do not myself think, and neither does my right hon. Friend the Minister of Housing and Local Government, that this is the best medium through which to study the problems of urban planning and development. I think that most hon. Members, when they have read the Report, will take the same view. We are now studying precisely what is the best means of doing it, and this is a matter on which, obviously, the views of my right hon. Friend the Minister of Housing and Local Government will weigh very strongly with us.

Sir Rolf Dudley Williams: Is the right hon. Gentleman aware that, whether he intended to or not, he gave the impression to the House that he did not think that there was much chance of getting the £150,000 out of the Treasury? We on this side know that the Chancellor of the Exchequer has his limitations, but will the right hon. Gentleman, when discussing with the Treasury the sum of money to which my right hon. Friend the Member for Birmingham, Handsworth (Sir E. Boyle) referred, draw the Chancellor's attention to the point that this money will be far better paid out for the purposes which he has indicated than for subsidising a few football clubs?

Mr. Speaker: Order. There is nothing about football clubs in the Minister's statement.

QUESTIONS TO MINISTERS

Mr. Rankin: On a point of order, Mr. Speaker. May I have your permission to draw attention to a glaring injustice?
It will have been observed that my right hon. Friend the Lord President of the Council answers Questions at No. 35. Has it been observed that he has been able to answer on only one occasion during this Parliament? Many of us feel that this is unjust. Would it be possible for the appropriate Members on both Front Benches to consider elevating my right hon. Friend to Question No. 25, so that I might receive an answer to my Question?

Mr. Speaker: The hon. Gentleman will realise that is not a matter for the Chair.


What he has said has, no doubt, been heard. Whether or not it is appropriate to do what he suggests is not for me to say.

BILL PRESENTED

INTERNATIONAL MONETARY FUND

Bill to enable effect to be given to proposed increases in the quotas of the International Monetary Fund; presented by the Chancellor of the Exchequer; supported by Mr. John Diamond and Mr. Niall MacDermot; read the First time; to be read a Second time Tomorrow and to he printed. [Bill 155.]

Orders of the Day — FINANCE (No. 2) BILL

Considered in Committee [Progress, 31st May.]

[Dr. HORACE KING in the Chair]

Clause 42.—(INTRODUCTION FOR COMPANIES ETC. OF CORPORATION TAX, IN PLACE OF INCOME TAX AND PROFITS TAX.)

3.50 p.m.

The Chairman: We come now to a new section of the Bill. The first Amendment selected is No. 270, and I suggest that with it we take two further Amendments, Amendment No. 271, in page 50, line 10, to leave out "1965–66" and to insert "1966–67", and Amendment No. 272, in page 50, line 20, to leave out "1965–66" and to insert "1966–67".

Mr. Anthony Barber: I beg to move Amendment No. 270, in page 50, line 4, to leave out "1964 and 1965" and to insert "1965 and 1966".
The purpose of this Amendment, unlike the Bill, is quite simple to comprehend. It is to defer for one year the operation of the Corporation Tax. Many of the arguments against and for this proposal raise issues which go to the very heart of the matter and concern the general principles lying behind the tax. It is not for me to say, of course, but I was wondering whether it might be for the convenience of the Committee, Dr. King, if we were to have the general discussion on the Corporation Tax at this stage rather than on the Question, That the Clause stand part of the Bill.

The Chairman: I am grateful to the right hon. Gentleman for raising that point so early. What he has said makes complete sense to the Chair. I hope that it will commend itself to the Committee that, in the debate on this first Amendment, we discuss the whole issue of the Corporation Tax, having a major debate upon it. I must, however, warn the Committee that, in that event, the Chair will be inclined to harden its heart to any debate when we come to the


Question, That the Clause stand part of the Bill.

Mr. J. T. Price: On a point of order, Dr. King. Amendment No. 270 is, clearly, a wrecking Amendment. May I ask you to exercise your discretion to the effect that, if the Clauses themselves are objected to by the Committee, the correct course is to vote against the Clauses? Amendment No. 270 can have no other purpose than a purely wrecking purpose.

The Chairman: It will, of course, be possible for hon. Members to vote against the Clause when we reach that stage, and to try to wreck the Clause entirely by voting against it. But it is for the Chair to decide whether an Amendment is a wrecking Amendment. If the Chair had thought that this was a wrecking Amendment, it would not have selected it.

Mr. Barber: First, I shall say something about the background to this tax, and I shall then give the Committee the specific reasons why, even if the Corporation Tax were right in principle, it would, nevertheless, be desirable that its operation be deferred for one year. It is now more than six months since the Chancellor announced his intention to bring in a Corporation Tax. That was in November, within a few weeks of his taking office, and all that has happened since has shown that the scheme was put forward without the slightest idea of how it would actually work in practice. It is really incredible that, after six months of preparation, on the very day when we begin to consider the tax in Committee, the Notice Paper contains even more Amendments put down by the Chancellor to his own Bill.
The Committee can take it from me, after my four years' experience at the Treasury, that the incredible muddle into which the Chancellor has now got himself is not the fault of the Parliamentary draftsmen or of the Inland Revenue, but is the consequence of the right hon. Gentleman's own ineptitude and his determination to rush in and act this year regardless of the consequences. The views of the Royal Commission are well known—I shall not repeat them now—yet the Chancellor, after only a few weeks in office, chose to ignore

them. In his Budget speech, the right hon. Gentleman had the effrontery to say that the Royal Commission
baulked at the logical conclusion … a separate tax on the profits of corporations quite distinct from the Income Tax which is levied on distributed profits."—[OFFICIAL REPORT, 6th April, 1965; Vol. 710, c. 255.]
Of course, what Lord Radcliffe, Sir James Millard Tucker and the other members of the Royal Commission who studied these matters baulked at was the injustice and the folly of duplicating the charge to tax on the earnings of risk capital invested in companies. The right hon. Gentleman may say that the principle was already accepted in the concept of the Profits Tax which we have had for many years, but, of course, there is all the difference in the world between an overburden of 15 per cent., the rate of Profits Tax, and an overburden of 35 or 40 per cent., the rate of Corporation Tax.
The truth is that the particular type of Corporation Tax which the right hon. Gentleman has chosen is founded on his Socialist philosophy. It will have the inevitable consequence of discouraging investment in private enterprise, because, if the tax is ever put into operation, investors in private enterprise will bear a wholly disproportionate share of the national burden. Indeed, this was apparent from the answer given by the Chief Secretary on television yesterday evening.
Superficially, of course, the concept of a single tax for corporations is very attractive. If the whole of the tax law for companies could be embodied in 40 Clauses, as the Chancellor so naïvely believes, there might be something to be said for it. But, as I shall show, the right hon. Gentleman seems to be oblivious to the complexities and anomalies which he is creating.
The extraordinary thing is that, even if we are to have a Corporation Tax, the right hon. Gentleman has chosen just about the worst possible scheme. Not only is it inequitable, not only does it militate against the efficient use of our scarce capital resources, but the right hon. Gentleman, in his wisdom, has actually selected the one type of Corporation Tax which is now being abandoned by our major competitors.
What does the Chancellor hope to achieve? If his great aim is to have a


separate tax on companies, which he can alter without affecting personal taxation, the existing Profits Tax is there to hand and available for that purpose. If he wanted to encourage companies to retain more profits, all that he had to do was merely to return to the position which existed before 1958, when we had a Profits Tax with differential rates. The blunt truth is that we are now presented with the Corporation Tax for the simple reason that the right hon. Gentleman, as his special contribution to the first 100 days of dynamic Labour government, committed himself in November to do it this year.
All this was considered by my right hon. and learned Friend the Member for Wirrall (Mr. Selwyn Lloyd) and my right hon. Friend the Member for Barnet (Mr. Maudlin,). I remind the Committee of the conclusion to which my right hon. Friend the Member for Barnet came. He said in his Budget speech of 3rd April, 1963:
My predecessor"—
that is, my right hon. and learned Friend the Member for Wirral—
referred to the question of amalgamating Income Tax and Profits Tax into a single corporation tax. The Inland Revenue have discussed a scheme for this purpose on a confidential basis with certain experts drawn from outside bodies. As the Committee may well be aware already, these discussions have led to the advice from industry that schemes which have been considered for the amalgamation of the two taxes are not satisfactory. I accept this advice."—[OFFICIAL REPORT, 3rd April, 1963; Vol. 675, c. 466.]
The Chancellor, however, has ignored the advice of industry. Now, in his innocence, the right hon. Gentleman complains because he is accused of being anti-business.
There is a salutary rule of law that, apart from the plea of insanity, a man is deemed to intend the natural consequences of his acts. The fact is, as I shall show, that the way in which the Corporation Tax has been contrived amounts to a vicious swipe at the free enterprise system. The particular method of taxing dividends and other distributions which the Chancellor has chosen inevitably imposes a penalty on risk capital. Together with the other aspects of the tax which we shall be discussing on later Amendments, I believe that

unless the tax is dramatically modified, it will do untold harm to industry and commerce.

Mr. Harold Lever: Is not the right hon. Gentleman's case made, however, upon the assumption that the Committee passes Clause 43—

The Chairman: Order. Will the hon. Member please speak up, so that he may be heard?

Mr. Lever: Is not the right hon. Gentleman's case based upon the assumption that the Committee will pass Clause 43, which allows the taxation of dividends? That has not yet been decided. We are discussing whether to apply Corporation Tax to company profits. It does not necessarily follow that we should apply an Income Tax to company distributions. That depends upon the conclusion we reach on Clause 43.

Mr. Barber: Clause 43 is concerned with the Chancellor's proposal to arrange for companies, on the payment of dividend, to deduct tax at the standard rate and to account for it to the Inland Revenue. This, however, is an integral part of the particular type of Corporation Tax which the Chancellor has chosen. Under the Amendment, we are considering whether the whole of this Corporation Tax, including those proposals, should be deferred for a year.
When I say that the Chancellor is taking a swipe at the free enterprise system, what I have in mind is the sort of comment which has been made by responsible people all over the country and even in The Times, which during recent years can hardly be said to have been friendly to the Conservative Party. The Times wrote in its leader:
The proposals suggest that the Labour Party not merely do not know how business works, but that they do not care.
During the debate which we shall be having this week, and when we return after the Whitsun Recess, we on this side will give specific examples to show that the Chancellor is determined to knock private enterprise for six or, alternatively, that he has little idea of the consequences of his proposals.
4.0 p.m.
This afternoon, because we are having a general debate, I will give the Committee the hard facts of only one case, a case of which full details have been given to the Inland Revenue. First, however, let me state the consequences of the Corporation Tax in this case. As a direct result of the introduction of this form of tax, two British companies, which I propose to name, will next year find themselves unable to pay the preference dividends on about £7 million of capital which was raised on a perfectly legitimate basis.
The two companies concerned are Conch Methane Tankers Ltd. and Methane Tanker Finance Ltd. These two companies were formed in 1961 to finance the construction in British shipyards of two specially designed tankers to carry liquid methane from the Sahara to the United Kingdom for the nationalised gas industry. The two vessels, of over 20,000 tons gross and costing nearly £5 million each, are on charter for 15 years to the Gas Council. They began importing liquid methane last year.
The finance required to pay for each ship was obtained in a perfectly sensible and legitimate way: bank loans amounting to £1,400,000 repayable in six years, 8 per cent. cumulative redeemable preference shares amounting to £3,255,000 redeemable over 7 to 15 years and ordinary shares of £20,000. [Laughter.] The Chief Secretary to the Treasury laughs. Let him wait until he hears the story.
The preference shares were subscribed at par by leading insurance companies, British and overseas, and pension funds, and a high proportion of preference capital was necessary to enable the benefit of capital allowances to reach the charterers at a correspondingly low rate of hire for the ships. The principal advantage of preference capital is that the dividends, being payable out of taxed profits, cost the company in cash only the net amount thereof. In this way, it was possible to provide attractive terms for the nationalised gas industry.
Under the system of Corporation Tax which the Chancellor has chosen, the Income Tax deducted from all dividends must be paid in cash to the Inland Revenue under the next Clause. The whole basis by which these two ships

were financed will be destroyed and within the first year of operation of this legislation the companies will be unable to service their preference capital.

The Chancellor of the Exchequer (Mr. James Callaghan): I have not heard of this case in detail, but as the right hon. Gentleman has studied it will he tell me, as a result of his studies, whether this company was practising the kind of arrangement that the Public Accounts Committee condemned two years ago?

Mr. Barber: I will answer the right hon. Gentleman by telling him that the company obtained clearance from the Inland Revenue under Section 28 of the Finance Act, 1960. [HON. MEMBERS: "Answer."] I will read to the Chancellor the relevant Section. It states:
Where—

(a) in any such circumstances as are mentioned in the next following subsection, and
(b) in consequence of a transaction in securities or of the combined effect of two or more such transactions,

a person is in a position to obtain, or has obtained, a tax advantage, then unless he shows that the transaction or transactions were carried out either for bona fide commercial reasons or in the ordinary course of making or managing investments, and that none of them had as their main object, or one of their main objects, to enable tax advantages to be obtained, this section shall apply to him in respect of that transaction"—

Mr. Callaghan: Will the right hon. Gentleman now be good enough to answer my question? He knows that there was a Report from both sides of the House condemning certain practices that related to what sounds like this kind of arrangement. I have not had an opportunity of studying the case. The right hon. Gentleman has. I should like to know from him—it is a reasonable question—whether this is one of those kinds of arrangement. If so, does the right hon. Gentleman think that it is proper or does he not?

Mr. Barber: I will tell the right hon. Gentleman precisely what I think. I know, first, that no Committee of the House of Commons ever advocated a tax of that nature that the right hon. Gentleman proposes. [HON. MEMBERS: "Answer that question."] If the Chancellor wants to know a little more about the case, I will tell him this. Substantially, the whole of the benefit of that arrangement—I hope that the right hon.


Gentleman will listen to this—was passed on to the gas industry and the terms were so good that they enabled the gas industry to dispense with Treasury borrowing to the extent of £9½ million. Now, in one fell swoop, with no transitional provisions, the right hon. Gentleman is making it impossible for these companies to honour their obligations. This is but one example of the achievements of the right hon. Gentleman.
Then there are the provisions concerning close companies. Obviously, at this stage, I do not propose to go into details, but does the Chancellor really understand the consequences of disallowing for tax purposes loan interest on a loan which is made bona fide by a participator? Do Treasury Ministers really think that the limitations on allowable remuneration in the computation of Corporation Tax are appropriate for some of the major public companies which are now brought into the net and described as close companies? If they do, I can only tell the Chancellor that he has simply no conception of the rewards which are necessary and appropriate in growing businesses.
Or—who knows—are we to have yet another batch of Government Amendments on close companies to add to the 170 which have already been put down?

Mr. Callaghan: Does the right hon. Gentleman want them?

Mr. Barber: The right hon. Gentleman asks whether I want them. The trouble is that we in the Committee have no idea of what is in his mind. Not only does the right hon. Gentleman hardly ever speak in our debates, but he does not even allow his deputies to tell us. Therefore, we on these benches, like the investing public, have to rely on inspired leaks to the Press.
The Daily Express this morning carried a story which was substantially the same as that which appeared in the Financial Times and in the Daily Mail. The Daily Express said:
In Whitehall last night there were strong hints that the Chancellor will give way on other points in the Corporation Tax. These are likely to concern 'close' companies.
It is a little odd that the first that we should hear of these matters is through inspired leaks to the Press.
While I am concerned with close companies, who is to determine whether a close company has distributed a reasonable amount of its profits? [Interruption.] The Chief Secretary will know that under the old Section 245—

The Chief Secretary to the Treasury (Mr. John Diamond): It is the same as before.

Mr. Barber: I am very pleased to hear it. [Interruption.]

The Chairman: Order. Even if occupants of the Front Benches want to interrupt, they must do so in the conventional way.

Mr. Diamond: I offer you my apology, Dr. King.

Mr. Barber: The hon. Gentleman is sufficiently experienced in these matters to know well that the overwhelming majority of cases under Section 245, which concerns companies controlled by five or fewer persons, never reach the courts. They are settled by the special commissioners, who operate in an office at Thames Ditton. The great advantage of the present system, which, I understand, is not to apply in the future, is that a person can go there and the decisions which are given on this extremely important matter for family businesses are at least uniform; and on the whole, I think, most accountants and professional people would agree that they are extremely fair and realistic.
Now, I understand—I shall be glad to be corrected if I am wrong—that uniformity is to be thrown to the winds, simply because it is expected that there will be so many negotiations and appeals that the special commissioners will not be able to cope. Therefore, I understand, each individual inspector of taxes is to be the judge in the first instance.

Mr. Joel Barnett: The right hon. Gentleman will, I think, find that most accountants would much prefer to deal with the local inspector of taxes than with the special commissioners.

Mr. Barber: That is certainly not borne out by what has been said to me. The reason is perfectly simple. Whatever respect one has for the inspectorate, the fact is that it will be impossible for


inspectors of taxes to avoid adopting a quite different approach to the problem from one district to another.
The truth is that the Chancellor of the Exchequer has evolved a delightful theoretical basis for taxing companies, but when one looks at the Clauses in the Bill it becomes apparent that again and again he could have given little thought to how it will work out in practice. As we shall show on later Amendments, he has totally ignored the experience of other countries which have a corporation tax. Now we have reached the ludicrous position in which this morning we pick up our newspapers and read this extraordinary report:
In New York last night, it was reported that Mr. Wilson's Government were seeking further advice on Budget making, in addition to that from Dr. Balogh and Dr. Kaldor.
I should have thought that this was, to say the least, a little late in the day.
The Government Amendments which appeared on the Notice Paper this morning show that the right hon. Gentleman has done nothing to meet the basic objections of those companies which pay foreign taxes. While the Prime Minister rightly boasts about the size of our overseas assets, the right hon. Gentleman sets about deterring overseas investment. If he thinks that a further dollop of transitional relief will restore the incentive to invest overseas, he is very much mistaken.
Let me read to the Committee one passage from a letter which was sent to the Chancellor of the Exchequer by Mr. Paul Chambers, Chairman of I.C.I. He said:
Over the 15-year period"—
that is, 1950 to 1964—
against a direct outflow of £37 million, we had a direct inflow net of all overseas tax of about £120 million … This, I think, proves the contention that, even in the short term, the country benefits from our overseas investment. The Company certainly does, and our rate of growth and development will falter if it is checked. When you consider that our total exports during the fifteen years referred to were £930 million, and that much of this—though we cannot prove exactly how much—relates to products exported to fill in the manufacturing ranges of our overseas companies, I think it will be clear that even a pause in our overseas investment would be dangerous to us as exporters and would undoubtedly do the country's balance of payments more harm than good even in the shortrun.

But, no, the Chancellor is determined to ignore all the advice from those who really understand.
This Amendment seeks to defer the operation of the Corporation Tax for one year. I would say this to the right hon. Gentleman: whatever may be the intrinsic merits of the tax, there is now so much confusion as to its effects and the matter is so complex that it is surely not unreasonable to ask for one year in which to consider its full implications. There is not a businessman in this country, and hardly an accountant, apart from the Chief Secretary, who approves of the present proposals. Nobody can seriously pretend that the serious Press is enamoured of these ideas.

Mr. Emrys Hughes: The Daily Express?

Mr. Barber: Not the Daily Express.
Listen to what the business section of the Sunday Times has to say, not on the merits, but on the point with which I am concerned.
But over and over again in the 226 pages of the Bill there is evidence of hasty and unconsidered drafting, of short-sighted concentration on tax-avoidance, without thought to the crippling side-effects of the remedies proposed, and of sheer, avoidable ham-handedness, leading to results quite opposite to anything the Labour Party and its supporters—let alone its critics—could really intend.
If that is not enough, let me quote a short paragraph from this week's Economist:
The alarming conclusion that emerges from this attempt to evaluate the economic effects of the corporation tax is that this major upheaval in our tax structure has been undertaken with virtually no attempt on the part of the Government to present the public with anything in the nature of a carefully argued objective and above all empirically substantiated case. It is not argued that such a case could be made out; but the issue turns on several questions of fact which the Government has not attempted to ascertain. There is, in fact, a grave suspicion that the corporation tax proposal is based on nothing more than the conjuncture of a desire to introduce a differential profits tax, the purely conceptual arguments of Mr. Kaldor's minority report of the Royal Commission on Taxation, and an overwhelming desire to demonstrate the Government's willingness for change.
4.15 p.m.
But I think that the most compelling reason for deferment is the fact that the Chancellor of the Exchequer does not understand what he is doing. The Chief Secretary told us during the Budget


debate that as a result of the Corporation Tax
In future, business life will be simplicity itself."—[OFFICIAL REPORT, 12th April, 1965; Vol. 710, c. 966.]
To be fair to the Chief Secretary, I think that when he made that observation most of us who know him took it as a manifestation of his wry sense of humour, so I will not take him too literally.
However, the Chancellor of the Exchequer, when he wound up the Second Reading debate, was precise and specific, although I shall show that what he said served only to illustrate his ignorance of the provisions of the Bill. He said:
I do not want to go into lyrics of praise of parliamentary counsel, but they have compressed into a mere 40 Clauses the whole of the taxation on companies, which is a remarkable achievement. There is no doubt about that.
He went on a few lines later to say:
The whole of the new tax is compressed in to a 40-Clause passage in the Bill. I ask hon. Members opposite to consider this seriously. It is quite an achievement …"—[OFFICIAL REPORT, 11th May, 1965; Vol. 712, c. 198.]
Who told the right hon. Gentleman that? It was certainly not the Inland Revenue, and certainly not the Chief Secretary, who understands these things. To say that the whole of the taxation on companies is now compressed into a mere 40 Clauses is sheer nonsense.
What about the overwhelming majority of companies which wish to claim capital allowances? Where is the law concerning that matter? If we look at Clause 59, we are referred back straight away to no fewer than 75 Sections of the Income Tax Act, 1952. To take another example, anyone who wants to calculate what is left of double taxation relief still has to go back and consult 25 Sections of the 1952 Act. What about non-residents? Do they have to look any further than this Bill? Of course they do. They have to go back to a complete Part of the Income Tax Act, 1952. If the law concerning Corporation Tax were ever consolidated, the three matters I have mentioned so far would mean importing the substance of more than 100 additional Clauses.
But that is not all. If we want to find out how to treat premiums on leases, we are thrown back to the Finance Act, 1963. If there is to be a company re-

construction, then, to determine the liability to Corporation Tax, we have to look at the Finance Act, 1954 and the Finance Act, 1964. Or if we were engaged in a transaction in securities, we still have to refer to the Income Tax Act, 1952, the Finance Act (No. 2), 1955, and the Finance Act, 1959.
What of banks, insurance companies and investment businesses? I will not go into greater detail, but all these businesses which will be liable for Corporation Tax must refer back to the provisions of other legislation.
Even where the Bill makes major changes in company taxation—for example, in the case of close companies—there are still innumerable references to the 1952 Act, which are not simply concerned with the transitional arrangements.
The instances which I have cited are only a small proportion of the references to other legislation. There are more than 300 such references in those Clauses and Schedules of the Bill concerned with Corporation Tax and they refer to no fewer than 28 other statutes. On top of all this, it is made clear in Clause 49 that we cannot begin to compute the income of a company for the purposes of Corporation Tax without taking into account the whole of the law and practice relating to Income Tax.
For all I know there may be good and sound reasons to proceed by way of references to other Measures, but for the Chancellor to stand at that Box and to tell the world that the whole of the taxation on companies has been compressed into 40 Clauses really is the most abject nonsense, and only goes to show that the right hon. Gentleman simply has no idea of the chaos and confusion which he has caused. The argument of simplification is sheer poppycock, and if the right hon. Gentleman does not know it everybody else who has studied the Bill certainly does.
Many of the serious practical consequences of this tax are only now beginning to be appreciated by the business community. The Chief Secretary said that the Finance Bill was going quite well. I must say that I wish one could say the same for those people in business, on whom our prosperity depends. The fact is that the Corporation Tax is not only ill-conceived and ill-considered: it


strikes at the root of the free enterprise system. It is a product of Socialist theory, and incompetent execution, and if the Government resist this Amendment, the sole purpose of which is to give time for consideration, the country will know that as far as industry and commerce are concerned the Chancellor of the Exchequer either does not understand or does not care.

Mr. Callaghan: As this is by way of being a Second Reading debate—with due respect to you, Dr. King; I am not sure that it is, but it is by way of being such—I should like the opportunity, on the Corporation Tax, of making some observations straightaway in reply to what the right hon. Gentleman the Member for Altrincham and Sale (Mr. Barber) has just said.
I must say to the right hon. Gentleman that if this is to be the basis of the Opposition's attitude throughout our consideration of the remaining Clauses of the Bill, then we have very little to fear, because, quite apart from the spurious politics and the synthetic indignation, there were comparatively few points where reality broke in.
One of the tasks at this stage of the Committee's proceedings, and during the remaining stages of the Bill, will be to disentangle Conservative politics from the reality of business, because there is a growing and substantial difference between the two. I take the major attack which the right hon. Gentleman makes on me. Either, he says, I do not know what I am doing—[HON. MEMBERS: "Hear, hear."] Well then, if I do not know what I am doing what a lucky shot it was, in his words, that I am taking such a vicious swipe at private enterprise!
Which is it to be? The right hon. Gentleman really ought to make up his mind. Either this is a vicious, sinister Socialist attempt to undermine the whole foundations of the system under which we work, or else it is the consequence of a flip of the coin in the air. He does not know which side it has come down on; it has just come down this way!

Mr. Barber: The right hon. Gentleman will know, of course, that there are pugilists who just take a vicious swipe at someone when they are punch drunk?

Mr. Callaghan: Well, the right hon. Gentleman has not been here enough during the course of these debates to be punch drunk himself—[HON. MEMBERS: "Where has the Chancellor been?"] I must say, following the personal reference to myself, that I have sat in on the Bill—it was proper for me to do so in the circumstances—more than any other previous Chancellor on any previous Finance Bill. I have had to sit here and watch hon. and right hon. Gentlemen opposite, and note their absences. I would claim—indeed, I know—that I have taken a much deeper personal interest than perhaps others have done. I claim no particular virtue for that, but I say it because it is not right to say that I have disinterested myself in this matter. I have sat here hour after hour. We have had about 50 Divisions on this Bill and I have taken part in every one of them.
Now I come to some of the points made by the right hon. Gentleman. It really is interesting to see how the party opposite, once it gets into opposition, reverts to its old ways. No one would think, listening to the right hon. Gentleman's speech, that there was anything wrong with the tax system at all. Anybody would think, having heard it, that we have a perfect, precise, machined system here which is working day after day through its beautiful instruments.
For years before 1964 there was demand for reform of the tax system. I will quote one or two of the illustrations which were used, "A puffing Billy in an age of Beechings"; "pitiful stupidities of the present system"; "major changes are needed in Britain's tax structure"; "the fault is structural"; "root and branch reform is needed". These are judgments not by me, but by some of the right hon. Gentleman's supporters, by some of his research institutions, and I say to the right hon. Gentleman that we shall get further in these debates if we start from the assumption that was shared at least up to the time of the General Election, if not since, that a root and branch reform of the tax structure was needed. There is no doubt that there is a great need for reform of this sort.
I come to the next point. I have equally no doubt that separation of personal taxation from company taxation is one of the major reforms which are needed,


and will be achieved by the Bill. Whatever refinements there may be between them, this is a system and basic structure which will bring our Income Tax and Corporation Tax systems nearer to the system of other countries. There will be differences in the manner of treatment of shareholders, but the basic separation is a concept which we shall share; and to that extent, and that is the extent we have claimed hitherto, we are bringing closer together the tax systems which exist.
I have no doubt equally that, though there will be transitional difficulties, once they have been overcome, it will be preferred by the great majority of companies in this country. Already, there are growing signs of that. Of course, there will be transitional difficulties. There always are when we have to reform a system which is pitifully out of date, a system of which people have been able to take very great advantage, which has operated equally and unequally on the just and the unjust alike.
There are bound to be transitional difficulties, but if we are ever to make reform in this country we can rely upon it that the Tory Party will come along and say either that it is wrong or that it is being done at the wrong time. It happens year after year whatever the occasion may be and that is what it is doing on this occasion. For that party it would never be the right time, whenever we chose to reform it, but when we do reform it there are always transitional difficulties. There are bound to be, with a system which has grown up over a long time. The question is, are we going to reform that ramshackle structure, and if we do, shall we get one which will bear a decent relationship to the practice and the growth of modern industry?
All we have heard about are companies which are the larger distributors of their profits; distributions which they will find it more difficult to make, or they will find it difficult to make substantial profits to enable them to distribute the same level of dividends to their own shareholders. I have had it borne in upon me time after time, by the F.B.I. and others, that companies will have to cut dividends. That is a perfectly reputable thing to want, not to want to cut dividends. I think that

companies will have to get larger profits if they are to distribute the same amount in dividends and, at the same time, maintain their retentions at their present level.
These are companies that we have heard from. We do not hear of the great number of companies—perhaps it is natural that we should not do so—which will directly and immediately gain through the introduction of Corporation Tax, companies—I shall not name them, but they are household names—in this land today which stand to gain immediately and directly, which can, if they care to, either increase their dividends—I trust that they will not, because that is not the purpose of the change—or which will be immediately able to put away increases in their retentions, plough back into their firms, in order to modernise them, if they need to do so, or to expand, where it is appropriate for them to do so.
4.30 p.m.
It is well known to anyone who studies these matters that these are large companies as well as small companies. Many will be known throughout the land. I quite understand that those who now find that the level of profits they will need to make to maintain their dividend will need to be higher will say that they do not want this change. But that is really no reason why the Opposition should espouse their case bolus-bolus, irrespective of the benefits which are to be conferred by this tax change upon a large number of other companies. That is why I say to the Opposition that they are not representing industry as a whole when they make this case today.
There are large sectors of industry which know what the benefits of this change will bring.

Mr. John M. Temple: The right hon. Gentleman has made an important statement. Is he basing it on a 35 per cent. Corporation Tax or a 40 per cent. Corporation Tax?

Mr. Callaghan: That is a fair question, but I cannot at the moment disclose the rate of tax that is to operate from next year. Broadly speaking, what I am saying would operate obviously on more companies at 35 per cent., but would still operate on a considerable number of companies at 40 per cent., whichever rate


was chosen. There are four points, 36 per cent., 37 per cent., 38 per cent. and 39 per cent. each operating to a decreasing extent as one goes up. I think that it is an advantage in the new tax system and I fully accept that it will make manipulation more difficult. Perhaps I am wrong, but I do not think that any dispassionate observer will object to that.

Mr. Quintin Hogg: What does the Chancellor mean by manipulation?

Mr. Callaghan: I will take one instance of this under our present tax system. It has always been the case that losses are supposed to be carried forward. We do not carry them back. That has been a standing rule for many years. By "manipulation" I mean a system under which a large number of companies, through the control of subsidiaries, have been able to employ the existing imperfections of the system to carry their losses backwards as well as forwards. They have been able to recover tax paid on profits made in earlier years and sometimes these "losses" are artificial, they are not genuine at all.
There are plenty of people in the City today who know their way round the Income Tax code like many of my constituents know their way to Cardiff docks, or to the steel works. They know how to use the existing tax code and they have found means of using it. These methods have drawn upon them the condemnation of the Public Accounts Committee. I asked the right hon. Gentleman about the particular company he was quoting and no doubt we will hear some more of it when we come to the details of this particular company and see what has happened there.
What is quite clear is that there are companies today who are and have been reclaiming taxation that they have never paid. That is what I mean by "manipulation". I do not take the view that the tax system should be so constructed as to make it absolutely equal, if it means constricting the growth or the expansion of companies or of individual progress. That would be a foolish view to take and there is nothing in the Bill which takes that view. Certainly, it blocks up some of the more glaring limitations and more glaring forms of avoidance, which are

very technical, but which, to those who know and study them, have been an increasing source of repugnance. It blocks them up and I think that it is right so to do.
I would claim, on the other hand, that the introduction of this new taxation system is necessary in this particular field because the patching-up operations to try to avoid the more glaring examples of manipulation have failed. Everyone associated with the Income Tax system knows they have failed and knows that only a root and branch change will do. When I use the words "root and branch" I am quoting not from an official Conservative Party publication, but from a Conservative Party publication. I do not know how far it would commend itself, but I am quoting from Crossbow. [Laughter.] I do not know what the Committee thinks about Crossbow. This is Crossbow, not Cross-bencher.
The right hon. Gentleman raised the question of the small company. I think that it will be seen that the operation of this new system, with its deliberate intention to encourage retention rather than distribution, is bound to help the small company. I know we are not debating those Clauses, Dr. King, but as passing reference was made perhaps I can make passing reference to them, too, and say that I think there has been considerable misunderstanding about the operation of the Clauses in the Bill effecting what is known as the "close company".
I would sum this up by saying that at the moment any "close company" is liable to a direction from the Surtax Commissioners to distribute the whole of its profit. Under the new system, provided that a company distributes 60 per cent. of its profit it will not then be subject to a direction. That is not a tightening up of the provisions; it is a loosening of them. I think that there has been a good deal of misunderstanding about this particular point.

Sir Tatton Brinton: Is this last statement quite correct? As the close companies are defined under the Chancellor's Finance Bill far more companies are swept into the net than were included in the Surtax net. The definitions under the Surtax net were much less wide-ranging than the new definitions are. Many public companies with


substantially over 25 per cent. of their capital, on the public, will now be included which would not have been before.
Secondly, when the Chancellor says, as he has said before, that Surtax companies in the past were liable to be called on to distribute or to pay tax on the w hole of their profits, this was so until, I think, the 1962 Finance Act, when the Surtax Commissioners had the right, if they found distributions to be too low, to exact tax on the whole profit. I think that it was the 1962 Act. The Chancellor introduces a new—

Mr. Diamond: The hon. Gentleman is wrong and he is making a speech.

Sir T. Brinton: This is a vitally important point.

The Chairman: Order. When an hon. Gentleman seeks to intervene he must intervene briefly. If he wishes to make a speech he must try to catch the Chairman's eye.

Mr. Callaghan: I have the point. I think that, with respect, the hon. Gentleman will find, when we get to those Clauses and discuss them in detail, that he is not correct in some of the things he has been saying. The first part of what he says was correct. In fact, more companies will come into this particular provision than have been so far. I prefer not to discuss, with the permission of the Committee, the whole basis of these at the moment, but I want to correct a misunderstanding that has somehow got around, I think as a result of circulars distributed and no doubt written in good faith, that this is a tightening of the provision. It is not. It is a loosening of the provision.
Provided that a company distributes 60 per cent., it is not open to challenge. Under the previous arrangement, it could well have been open to challenge. This is a relaxation, but perhaps we need not get into these detailed discussions now. We can do that when we get to the appropriate Clause, when either I or the Chief Secretary will be prepared to discuss the matter further. We shall be using the inspectors of taxes rather than the special commissioners for this purpose. The inspectors of taxes administer a great deal of the Income Tax Acts at present, and I have not heard

many complaints about lack of uniformity in treatment of other matters, and I see no reason why, given the administrative instructions, there should be any lack of uniformity in the treatment of these companies either.
The right hon. Gentleman referred to overseas investment, and I shall touch on it in passing although we shall get to this Clause in due course. I think that the case about this—and I have said it more than once, and I shall go on saying it—is that overseas investment is clearly necessary and will continue. I have given the figures before, and no doubt I shall have to give them again. It is clearly necessary, and it will continue.
The new tax arrangements will make companies more selective in the type of investment which they choose to undertake, because they will have to take into account more the taxation provisions contained in the Bill. This is right, because a certain amount of overseas investment has been of an unsatisfactory character. We have been pouring out large sums of capital from this country to get returns which, on any normal basis of investment, would not be justified if they were undertaken under what I regard as a proper basis of taxation.

Mr. John Harvey: Would the right hon. Gentleman agree that even if one accepted that his argument might conveivably apply to new investments overseas, in trying to bring about the state of affairs which he would like to see he is whacking over the head a lot of existing investment that is immensely valuable to our economy?

Mr. Callaghan: No, I do not take that view. Let me quote what one company said. It sent me its accounts to enable me to see what its conclusions were. I think that the hon. Gentleman will see the case stated as fairly as possible in this company's report. It says:
We do not appreciate the present measures.
That is inevitable. It is a large company which will pay more tax, and it does not appreciate them.
There are three main conclusions to be drawn from this. First, the international scope of the company will continue. Secondly, if it is in our opinion advantageous that additional investments should be made


abroad and it is within our power to make them they shall he made. Thirdly, some new investment overseas will not take place. In effect, the Corporation Tax will make us more selective in the way our investments are directed.
That is absolutely right. That is what we need today, at a time when we have going out of this country on capital account—and we have had for some years past—a flow of capital that is quite unjustified by reference to our balance of payments position. What is needed is that investment should be made more selective overseas in the future than it has been in the past. That is all I ask, and I think that that will be the consequence of this new tax system.

Mr. Robert Carr: Would the right hon. Gentleman reflect for a moment about the effect of what I might call the high profit, the quick return, about which he has been speaking, on a developing country by private investment, because almost by definition that investment tends to give both a slower rate and a lower rate of return?

Mr. Callaghan: There is no doubt that a new tax system like this bears differently on different countries according to the rates of tax which are chargeable in those countries. In parts of the developing Commonwealth there is a low rate of Corporation Tax. Perhaps I might add, in parenthesis, because there may be some who do not realise this, that most of the Commonwealth countries already have a Corporation Tax system, starting with Australia and New Zealand and going through to India. It is true that if, as in India, there is a high rate of Corporation Tax, one naturally gets a different result from what one would get in. say, Nigeria where there is a lower rate of Corporation Tax.
It is because of these difficulties, and as a result of discussions with the F.B.I. and representative bodies that I have introduced these Amendments which will tend to give companies operating in countries where there is a high rate of Corporation Tax some transitional benefit over a period of seven years. That will undoubtedly make up for most of the deficiencies which they would otherwise suffer. Let us remember that the Overseas Trading Corporation has been in existence as an entity only since 1957—

that is eight years. It has been under considerable challenge. I am now proposing these transitional arrangements which will last for another seven years.
4.45 p.m.
With regard to the basic point raised by the right hon. Gentleman about the effects on the developing countries, as I said to the House on Second Reading, the amount of private investment in these countries has been declining steadily year by year. It is, in itself, a serious factor that it has been going steadily downward, and because of our obligations we must keep the position of the developing countries very much in our minds. I must, however, emphasise that the basic consideration which this Committee must have in mind at all times is a favourable balance of payments situation for this country.
It would be unfortunate if we were to see large sums of money going into other countries while we were not ourselves balancing our own accounts. This must apply on Government account, as well as on private account, and I should like to make it clear now that I regard it as an essential obligation on me to see that Government expenditure overseas is reduced, as well as seeing that private expenditure overseas is reduced, if we are to get this balance without which the economy cannot be healthy. I accept that obligation, but, as regards the developing countries, we shall certainly keep the effect of the taxation changes on direct investment in those countries under review.
I intend to do that, taking into account the fact that the level of private investment has been steadily declining over the last few years. I would then see whether it might be appropriate and practical to take further measures, but we have a period of years to see the operation of this because, by some of the Amendments which have been put down, we are giving companies operating in these territories an oportunity to see how they get on. I think that some will find that the situation is not nearly as bad as they are inclined to think before this starts operating.

Mr. Raymond Gower: The right hon. Gentleman has been talking about this as though it were a scientific process. Would not he acknowledge


that on the information available to him all that he can do is to say what he thinks will be the effect of this new kind of tax on overseas investment?

Mr. Callaghan: There is sufficient evidence available to show that the level of overseas investment cannot continue at its present rate if we are to balance our payments. That must be the starting point here, and I need not emphasise it too much. Hon. Gentlemen opposite are only too ready on other occasions to make me try to balance our payments. I wish that it had been done earlier, and that we had not been confronted with the deficit which faced us. I would have been happy to have found a balance in our overseas payments.
I am starting from a situation where, with the best efforts that can be made, when we get outside the heat of the party battle, everyone knows that cutting down expenditure is a slow process. It is possible to run these things down, but one cannot chop them off. I am engaged in running them down over a period of time. I have to aim at this objective and that is why I said that this was a change in direction for this country. We have to make foreign investment more selective than it has been so far. That is the whole case that I am making, and that is what the Bill is intended to do.
I draw a distinction between investments and exports. Many people claim that there is a direct relationship between the amount of investment that one has overseas and the amount of exports that flow from that investment. I would say only—I agree that this is net a perfect argument—that what other countries do does not bear this out. There are other countries, among them some of the most substantial and successful exporters, who have not invested significantly overseas. Of course, it may be necessary to do so. A number of companies—I.C.I. is one; the letter which the right hon. Gentleman quoted showed this—find it necessary to invest overseas in order to climb over tariff barriers, because of the existence of the E.E.C. and for other reasons.
But there is very good reason for be lieving that when one invests in the developing countries, as distinct from the developed countries, unless one gets a comparatively quick return on one's

capital, one finds, over a period of years, that the investment is not paying off, because local operators will be wanting to do that job.
This is a situation which it is not possible to measure tangibly, but it is one in which one has to get the best information which there is available. I am glad to see that a great deal of discussion has been stirred up about this, because we have proceeded automatically for years on the assumption that it is a good thing to invest overseas and that it is bound to bring exports in its train. I was talking to a distinguished Indian the other day who said, "It is very odd to hear the argument in this country that investment overseas adds to your exports. When they come to my country, they tell me that if we allow them to invest, and to put machines in, it will save imports".

Hon. MEMBERS: Both are true.

Mr. Callaghan: I have no doubt that both can be true—

Hon. MEMBERS: They are.

Mr. Callaghan: Both can be true, not are true. It is very odd—[HON. MEMBERS: "Oh."] Do not get indignant. This is not a subject on which you need to get indignant—

The Chairman: Order. I can assure the Chancellor that I am not getting indignant. I must ask him to link his remarks, interesting though they are, to the Corporation Tax.

Mr. Callaghan: I was wandering, but the eager faces opposite tempted me to do so. I had better bring my remarks to a close, as I have been speaking for some time.
I will deal, finally, with one suggestion of the right hon. Gentleman about duplication of taxation. The case which he made was that if one separates personal taxation from company taxation, one is levying double taxation: the State takes its toll at more than one point in a stream of money flowing through the economy. As my hon. Friend interjected when the right hon. Member said this, that is true, in any case, at the moment in relation to the Profits Tax. There, the State takes its toll in the first instance, but even if one does not accept that—and it is so—consider any citizen's private expenditure. That is taxed again after he has paid his Income Tax and/or


Surtax. Every time he buys an article on which Purchase Tax is charged, every time he purchases, say, a packet of cigarettes, he is suffering under this argument, which I dispute, about double taxation.

Mr. Barber: I do not think that I can have made myself clear. I said that I accepted that there was an element of double taxation at the moment because we had a system of Profits Tax. But I went on to say that there is all the difference in the world between an overburden of 15 per cent. and one of 35 or 40 per cent. The right hon. Gentleman seems to be arguing that the extent of the double taxation does not matter two hoots.

Mr. Callaghan: If the right hon. Member is not arguing against the principle, I need not continue. If his argument is against the principle, we should discuss this further, but if he is saying that what is at fault is the amount of double taxation, that is an entirely different argument.
As I said at the beginning, it does not necessarily follow that there will be more taxation paid in the future than there has been in the past. It will depend entirely on the policy of the company. This new system will undoubtedly, in a few years, be the means of stimulating the small company by giving it greater rewards than at present by reducing its taxation burden overall. It will be the means of ploughing back, of enabling companies of all sizes to plough back more into new plant, new machinery and equipment than they can at present. It will be the means of enabling us to adjust the taxation system as between the individual and the company by separating the two and it will also be the means of enabling us to be more selective in our overseas investment. This is a reform which is long overdue, looked at by previous Chancellors, put on one side. It is claimed that it has never been the right time to introduce it. That is a given and axiomatic fact. We have now done so. I believe that in two or three years hon. Members will look back and wonder what all the fuss was about.

Mr. J. Grimond: I look forward to the day when a statue to the Chancellor of the

Exchequer is erected in the City of London. In the early part of his speech, he said something which I am sure he did not mean in the sense in which it may be taken. As it is important that we should not exacerbate feelings further, I will give him the chance to clear it up. The right hon. Gentleman appeared to say that he had taken a lucky swipe at private industry. I am sure that he did not mean to say anything so inept. I hope that he will take the opportunity to say that he has no intention of taking a swipe at private industry.

Mr. Callaghan: There is so much sensitivity at present that we had better not add to it unless it is absolutely necessary. I am sure that it is known in the Committee that in the terms in which I was using it—rephrasing what the right hon. Gentleman the Member for Altrincham and Sale (Mr. Barber) was saying—I was not opposed to private enterprise, or saying that I had taken a lucky swipe at it. I was trying to stand his argument on its head by means of debating dialectics.
I regard the making of profits by private enterprise as of the greatest significance in the present state of the economy. We need them. We need to encourage them—[Laughter.] Hon. Members opposite need not laugh or sneer at this. I am sure that large businessmen and companies do not sneer about it. I am trying to state our attitude. We want to make the approach as efficient as possible and to reward the efficient, enterprising firms. If they make profits, we shall try to see that they get the reward of the profitability.

Mr. Grimond: I propose to start from this degree of agreement. It is absurd to be against private enterprise. It is like saying, "Stop the world, I want to get off". We have to make our living from private enterprise, and even the Labour Party does not propose any further measures of nationalisation except steel. We must try to see how we can make our mixed economy, which is mainly based on private enterprise, work better.
Of course, there is a strong case for a Corporation Tax. If companies are better off under this tax and are able to invest more and improve their competitive position, this will ultimately rebound to the benefit of the shareholders.


We all know that many shareholders considered that one of their greatest benefactors—though unintentionally—was Sir Stafford Cripps, because on the day that the moneybags were loosened, more came out of them because more had been stored up there under the Cripps view that one should not distribute.
The Chancellor underestimates the importance of dividends for different reasons. I take the view that we should spread ownership, responsibility and power more widely. I am not sure that I want merely to increase the power of certain private corporations by enabling them continually to plough back money. Government speakers sometimes say that directors would benefit from this. They are not involved, as they get their salaries, emoluments and other payments, all quite properly. But this gives them great power. It gives them the power to expand in all sorts of matters in which they might be unpractised and power to misuse capital instead of spreading it through the economy. I will not carry this too far. I agree that there is a case for giving them more to invest, but it can he carried too far. I think that the Chancellor underestimates the importance of spreading wealth, and dividends are one way of doing it.
5.0 p.m.
The right hon. Gentleman also underestimates—although I believe that he is aware of it—the flaw in the argument which he advances frequently, particularly about oil companies, that most of these companies do not raise new capital on the market. Many of them do, and I am told that it is extremely important for companies to be able to raise even a marginal amount of capital on the market. This means that a company can get better terms than if it goes to financial institutions. For this purpose, it is essential to keep the price of shares at some figure which, at any rate, reflects some relationship with the underlying assets and the earning ability of the company. As a result of the Bill, even oil companies will find it harder to raise money, and other companies—not the oil companies but smaller plantation companies—will be open to takeover bids.
Apparently the Chancellor thinks that he can stop all this, but I ask him to

reflect upon it. It would be very damaging to this country and, indeed, ultimately it would be impossible, to forbid a number of sales of companies abroad. One can intervene in certain transactions, but one cannot make it a rule of policy if one hopes to remain a great international trading nation, and especially if one hopes to maintain, as the Chancellor does, a large amount of investment abroad.
Another criticism which I have of the Bill is that too much weight is put on tax evasion. I do not deny that it is a problem, but the main problem at the moment is to give an incentive to the economy in order to get it going more efficiently. I also feel that throughout the Bill there are many emotional appeals. The Committee constantly talks about the small man—the sort of home-grown dwarf, as opposed to the gnomes of Zurich. I admit that I use these terms, too. It is a common failing.
But let us be honest about it. Tax evasion is not done only by big operators in the City. All those people who know their way to Cardiff docks also know their way around the Income Tax system. I entirely agree that we should stop wholesale tax evasion, but let us put it in perspective. I should like more information on what the Government believe to be the size of the evasion, because there is a danger of doing considerable harm to the economy for the sake of stopping tax evasion. Nevertheless, I do not deny that the problem exists.
The Chancellor spoke about close companies, are  argued that he was conferring a benefit on them. This seems to be a dispute about language. If we deem everyone in the country to be liable for 100 per cent. Income Tax, and then we make them liable only for 5s. in the £, if they can make out a case for themselves, we may claim that this is conferring a benefit on them. But I am not sure that many people look at it that way; they would rather pay 8s. 3d. in the £ unless some reasons can be shown for their paying more.
I hope that the Chancellor will correct me if I am wrong, but it also seems to me that his proposal changes the onus of proof. Previously, the onus lay on the commissioners to go to a company and say, "Show us why you should not be more heavily taxed". As I understand the new proposal—and I


shall be happy to be corrected if I am wrong—the Chancellor is laying it down that normally one distributes 60 per cent. unless one can make a case for not doing so. This changes the onus of proof, and it is an important change; in other words, they are regarded as guilty unless they can prove themselves innocent. But I accept that the rate for them is lower.
Incidentally, I also believe that the Chancellor has now brought in many new companies. I am told—I may be wrong—that B.P. may be a close company, and I am not at all certain about the position of the nationalised industries. [HON. MEMBERS: "They all make losses."] Some of them make profits. In any event, we can discuss this later. The regulations about participitors will also cause some anxiety. In some cases depositors are participitators.
The Chancellor yesterday tabled some extremely important Amendments dealing with the position of overseas companies, and I should like to get one point right as a question of fact. I understood him to say that private overseas investment had been declining. It is very difficult to get figures because one year there is the Montecatini affair and the next year there is some other big transaction, so that the figures cannot be compared.

Mr. Callaghan: We were talking about the developing countries and private investment in the developing countries.

Mr. Grimond: Figures which I have seem to show that private investment abroad has been slightly increasing, although not by very much. There is also a considerable amount of Government investment overseas, and I was glad to hear the Chancellor say that this provides as great a problem as private investment and that he will take steps about it. He also said that private overseas investment is comparatively unrewarding, but this is not so when we look at the total.
Obviously, some private enterprise schemes are rewarding and some are not. If one were to be unfair to the Government, one could say that the groundnut scheme was not rewarding. But should we stop all Government investment on that ground? Clearly not. We must look at the total, and from the total of private investment it seems that it has been extremely rewarding from the

point of view of this country. It is not only that exports have increased.

Mr. Edmund Dell: Would the right hon. Gentleman say what are those figures which show that investment has been extremely rewarding?

Mr. Grimond: I did not realise that we were to have a Second Reading debate today. I have an enormous file on the subject here. I think that the Chancellor will agree that Bowaters, Shell, I.C.I., Dunlop, the Hudson Bay Company and others have been rewarding. There are masses of figures of rewarding projects.

Mr. Dell: May I put it to the right hon. Gentleman that 50 per cent. of our overseas investment is to countries which produce 18 per cent. of our exports?

Mr. Grimond: I do not think that we must look only at exports. We have to look at remittances and at the skill and "know-how" which British people bring to the overseas country. Many people are concerned about this problem. They are not saying that if we stop or slow down overseas investment, Britain will collapse. But they are saying that gradually big companies will tend to put more of their operations overseas. There will be fewer outlets for British skill and less use for the services of this country. There will be a tendency to go to America because the engineers have been trained in America. It is a gradual process.
I agree that we have a temporary problem. I am not sure that the Chancellor regards it as temporary. But if it is temporary surely it could be handled through the present machinery to a greater extent. I take it that he thinks that it is a long-term problem. I believe that in the long term there are arguments that overseas investments at least do as much good as any harm that we may suffer.
The Chancellor has brought forward proposals which will mean, I understand, that these companies will be put in the same position next year, the year after that and the year after that, as they are now, and that after that there will be a tapering off. I will come later to a point about the constitutional implications. If this is so, it seems to me virtually to say that this scheme of taxation will not apply to them. It is true that he said that they will not benefit


from any diminution in the rate. But they are to have a standstill.
This is extremely important. I understand that during that standstill he expects a thorough investigation in the country of this matter, and that is sensible. I hope that at the end of it we shall know how these people reclaim taxes which they have not paid and how exports flow or do not flow. It is possible to argue that but for our overseas investments our exports position would be even worse than it is today.

Mr. Callaghan: It could also be argued that the reason that the country's export performance has not been better is that we have not had sufficient investment in this country by comparison with our main competitors and that my proposals would do something to redress that balance.

Mr. Grimond: We are to have a standstill for these companies. I welcome it. It is a good thing. But am I right in saying that they will be paid out cash by the Exchequer? If so, this is at new departure. These companies will presumably get a cheque. Very enjoyable for them.

Mr. Harold Lever: Surely they will first pay out money for tax and then will get a good deal of it back from the Inland Revenue for a period of time. But there will be no net loss to the Exchequer.

Mr. Geoffrey Lloyd: We are in danger of getting into a serious misapprehension. The right hon. Member for Orkney and Shetland (Mr. Grimond) was under the impression that the Chancellor's concession announced in his Amendment last night would put the oil companies back into the tax position which they occupied before the Finance Bill. I do not think that this is the case at all, but the Chancellor let that statement go by as if it were a fact. I believe that the Amendment makes only a slight mitigation of his proposals. We should not be under a misapprehension.

Mr. Grimond: I plead guilty to having taken the debate into difficult and choppy water. It is difficult to know how wide one can go, and I take it that the Committee does not want a general debate on this subject. I understood from the Chancellor's Explanatory Note that he hoped to compensate the company for that degree of overspill which they would lose under his Budget proposals. To that

extent they would be fully compensated for the changes which he has introduced in so far as they affect overspill.

Mr. Callaghan: This is a very complicated subject. Anyone who has seen the Explanatory Note will realise that. Broadly speaking, as a general theme they are compensated for overspill. They are not necessarily compensated for underlying tax.

Mr. Grimond: I hope that we are now clear. I do not want to cause the City any more anxiety than it feels at the moment and if the other expert, the hon. Member for Manchester, Cheetham (Mr. Harold Lever), is prepared to let it pass, we will pass on.
I want to turn to the constitutional implications of the Amendment. As we have proceeded through the Bill we have seen the necessity for dealing separately with current proposals for raising revenue and with changes in the structure of taxation, having an expert committee which can consider the latter. No Parliament can bind its successors. I may be out of order in putting the question to the Conservative Party but I will go as far as I can. Suppose this Amendment is passed. It simply postpones the application of the Corporation Tax. Would the Opposition regard that as binding? Suppose they were the Government next year, would they regard themselves as bound to go with this postponement?—[HON. MEMBERS: "No."] Of course not. They are saying that they do not want this tax at all, and the future is left open. That is the strict parliamentary procedure.
It also applies to the Chancellor's very welcome concession. He has projected forward seven years, but he cannot bind his successors. It is open to any Chancellor of the Exchequer to turn the whole thing upside down. In Parliament we understand that, but I am not sure that business understands it, and in all these matters we are dealing with business decisions and with people who must make decisions about long-term investments. It is, therefore, important to explain to them that all these things are intentions, but that they are not binding, and that they must take this into effect. I am sure that the Chancellor agrees that if the economic situation of the country were totally different, as it may be in the


future, he would regard himself as open to vary these concessions.
It is worth making that point, and also making the point that we are in serious difficulties in discussing long-term tax changes in the context of an annual Budget in the Committee of the whole House. We ought to find some different machinery for discussing it. I have great sympathy with the Chancellor. If he consults anyone about his proposals and comes to the House with a cut-and-dried scheme, the House or the Committee object and say, "You ought first to discuss these things with us". If, on the other hand, he seeks to discuss it in that way, we say, "You are an ignorant so-and-so. You make proposals and then, after discussing them with us, you have to change them". We ought to have a specialised committee on the long-term structure of taxation.
The Chancellor said that one of the objects of this tax reform is to make business simpler. I hope that he is right. I think that it could be made simpler through the Corporation Tax, but I am not sure that the present proposals achieve this, and I look forward with some dismay to an even longer Finance Bill next year—although no doubt we shall have a fortnight between the end of this Finance Bill and the introduction of the next. The hon. Member for Cheetham will come back as forthright as ever, reinforcing the Government with powerful arguments to try to bolster up their weakening enthusiasm for the Capital Gains Tax and other measures.
I should have thought that one of the great advantages in separating personal taxation from corporation taxation is that there would be the possibility of lowering personal taxation. One of the difficulties of introducing the Corporation Tax now is that, for good or bad reasons, the Government have been forced to raise personal taxation. Therefore, I could not accept the view that the upshot of all this will be that personal taxation will remain at its present level or will be lowered. I fear that the upshot will be that it will be higher than it is.
Should there be such big tax changes at any one time? Certainly, I believe that the Chancellor has tackled more at one time than he might have done. This seems to tie up with our suggestion that

some credit should be given for withholding tax on companies. I hope that the time will come when the Chancellor will consider this suggestion, particularly in view of the double taxation element which is involved here.
5.15 p.m.
I do not criticise the principle of the Corporation Tax. I am much more reassured about overseas companies, particularly when one considers the criticism which has been levelled by them against the Chancellor's action. As to close companies and the possibilities of tax evasion, I hope that when the Government come to deal with these matters the Chancellor will not be inhibited by the criticisms which have been made about his personal qualities, abilities and understanding of the Inland Revenue. Indeed, when I hear those criticisms I remember that, like his right hon. Friend the Chancellor of the Duchy of Lancaster, he comes out of the Inland Revenue stable. He is inclined to prick up his ears and bay when he smells a tax evader. I hope that he will not be inhibited from making further concessions when it is obviously wise and proper for him to make them.

Mr. Dell: I will follow the line taken by the right hon. Member for Orkney and Shetland (Mr. Grimond), because I want to know what evidence he has for his suggestion regarding the relationship between overseas investment and exports.

Mr. Grimond: The whole tenor of my speech was to emphasise that one should not look at exports alone. Some companies are able to produce figures to show that, overall, benefit is to be gained from investment of this kind. If they are wrong we shall find out next year.

Mr. Dell: Since the Chancellor's proposals were made I have, in the Budget Debate and on Second Reading of the Finance Bill, called for an inquiry into the effects on our balance of payments of overseas investment. Time and again I have urged that such an inquiry should be made. I have pointed out the need for far more information than my right hon. Friend the Chancellor has at his disposal on this subject. As a result of the Amendments which my right hon. Friend tabled last night, he has provided an opportunity for such an inquiry to be carried out and I hope that it will be


carried out. We will then be able to thoroughly investigate the results of overseas investment on our balance of payments.
Many examples have been given, I.C.I. is one, of cases where the return to this country on our overseas investment is favourable. I perhaps know a little more about I.C.I. and its overseas investment than many hon. Members.
There is no doubt that the return on I.C.I.'s overseas investment has been entirely favourable. However, that does not mean that the general situation is favourable or that the general return to Britain on our overseas investment programme has been favourable.
We must consider whether we have had a return equal to the return we might have derived had the money been invested in the United Kingdom. I have done my best, on the basis of the information available—and, as I have said so often, that information is entirely inadequate—to make an assessment of the return to this country on our overseas investment. As a result of what I regard as a serious failure of the former Administration, this situation has never been properly investigated. At a time when we were investing overseas to an extent far greater than any of our main industrial competitors, the former Government made no real inquiry into the general effects on our balance of payments.
Now, as a result of the Chancellor's proposals and the investigations which are taking place, some figures have been produced, for example by the Federation of British Industries. However inconclusive the figures may be, they are helpful. As a result of investigations I have made, it seems to me that the balance of the argument is increasingly in favour of the case which my right hon. Friend the Chancellor is making.
I have found that there is very little relationship between the flow of investment and increasing exports—[HON. MEMBERS: "Oh."]—that is, taking the situation as a whole. When we consider certain companies—I.C.I., B.M.C., Leylands and others—we find that there is undoubtedly a relationship between the flow of investment and exports but, generally speaking, that is not the case. Consider, for example, the amount of in-

vestment we have made overseas. About 50 per cent. of Britain's overseas investment, excluding oil, banking and insurance, was, according to the Board of Trade Journal, in Canada, South Africa, India and Australia. However, only 18 per cent. of our exports went to those countries.

Mr. Terence L. Higgins: Would not the hon. Gentleman agree that he is really talking about a statistical correlation in discussing the relationship between investment and exports? Since we are seeking such a correlation, should he not vote for the Amendment so that time is given to produce the relevant figures?

Mr. Dell: By tabling certain Amendments last night my right hon. Friend the Chancellor has given the Government time to make the necessary inquiries. I agree that the evidence at present available is inadequate. I am not suggesting that any firm conclusions can be drawn from it. I am, however, suggesting that what evidence there is tends towards the arguments of my right hon. Friend.
Let us take the point further and consider the annual flow of investment and compare it with the annual increase in exports to certain countries. It will be found that there is no relationship between the two and that year by year we have been investing large sums in Australia, Canada, India and South Africa without anything like a corresponding increase in our exports to those countries. That is not the whole of the matter. There are obviously other returns to us from our overseas investment; for example, in the form of terms of trade. I am merely saying that this is a vital question which requires investigation. As far as I can discover from the facts that are available, the evidence is in favour of my right hon. Friend's case.
Since I have argued in favour of overseas investment in previous debates. I welcome the fact that my right hon. Friend has tabled Amendments which will enable the Government to carry out a full inquiry into this subject. As the Government are now able to carry out such an investigation, I hope that they will not delay in doing so.
There is need for a greater amount of selectivity in our overseas investment.


If one investigated specific cases of overseas investment I believe that it would be found—and this may even include the best examples like I.C.I. and the others I gave—that if the Corporation Tax in its existing form had been in operation previously, much investment would have been rejected because, on the evidence which would have been presented to the boards of directors, it would not have been found profitable. If the impact of the Corporation Tax will be to compel companies to be selective in their overseas investment, from the profitability point of view, benefit will derive to this country.

Mr. A. P. Costain: Is not the hon. Gentleman advancing an argument that companies should not invest in the developing countries in view of the high rate of taxation? Is that the object of the Government's present policy?

Mr. Dell: Hon. Gentlemen opposite should abandon the argument of the developing countries. Since the Chancellor produced his proposals they have deployed that argument time and again. Under successive Tory Administrations private investment in the developing countries fell year after year, yet nothing was done about it. [HON. MEMBERS: "No."] There is no point in hon. Gentlemen opposite trying to deny it, because the figures show that, in total, it fell annually. Indeed, if one takes account of the new money invested, after deducting the figures representing the reinvestment of profits made overseas, one finds that total investment overseas in recent years has been negligible. If hon. Gentlemen opposite intend to attack the Corporation Tax with that sort of argument about the developing countries they will get nowhere. They had better find a better argument.

Mr. Gower: Did not the hon. Gentleman hear the Chancellor's statement that, in future, companies in this country will have to be more selective? Is it not likely that, in being selective, they will find a more ready and profitable return for their money in the developed countries of the Western world rather than in some of the developing countries?

Mr. Dell: That may be so. The main reason why in the last few years private investment overseas has tended towards the developed countries rather than the developing countries is precisely because it has been found that private investment in the former is more profitable. There may be other reasons, political reasons, for the reduced amount of investment in the developing countries—

Sir William Robson Brown: The whole reason.

Mr. Dell: If that is the whole reason, why did not the former Government give to investors who were prepared to invest in the developing countries the guarantee which many of them had asked for against the political risks of so investing? The former Government did not give such a guarantee, but I am glad to say that the present Government are looking at the matter. [Laughter.] I do not know what amuses hon. Gentlemen opposite. Is it not an advance that the Government are looking at the matter? I hope that they will be prepared to give a guarantee against political risks.
I do not believe that even if such a guarantee were given investment in the developing countries would improve all that much or that such a guarantee would be the answer to the problem. The main reason why there has been increased investment in the developed countries rather than the developing ones is because it has been found that it is more profitable to invest in the former rather than in the latter.

Sir W. Robson Brown: Would the hon. Gentleman define what he means by "the developing countries"? Is he talking of Africa and excluding India? Is he aware that any amount of risk private money has gone towards Indian development? Is he also aware that the situation in Africa in recent years—the political climate, and so on—has been extremely severe from the investment point of view, although it is much easier and more encouraging now?

Mr. Dell: I am not excluding India. If the hon. Gentleman wants my definition of "the developing countries" I could not do better than refer him to the list of 77 developing countries which he will find in a Schedule to the Final


Act of the United Nations Conference on Trade and Development—and that list includes India. Including India, the value of our investment overseas in developing countries has been falling year by year.
I am surprised that hon. Gentlemen opposite, if they do intend to deploy this sort of argument, have not gone to the minimum of trouble to find out the facts. It is extraordinary how they argue without knowing the facts. Do they really believe that they are being just in spilling crocodile tears over the fate of the developing countries when they have not even made the minimum attempt to find out the facts?
Undoubtedly there are advantages in overseas investment. No doubt, as a result of it, we may be able to supply raw materials, machinery, improve our selling organisations overseas and so on. These are arguments which I have put to the Chancellor in previous debates on this subject. Nevertheless, one must accept that there is this disadvantage—that as a result of overseas investment, investment in this country may be lower than it should be. It is a question of balance and, to get to the facts, we need a thorough investigation. Only then will we find out the facts about the effects of overseas investment on our balance of payments.
5.30 p.m.
The fact is that we have a larger overseas investment than any other industrial country, with the exception of the United States of America. I believe that the reason is that a very high proportion of our exports have traditionally gone to the Commonwealth. The Commonwealth consists entirely of developing countries. Some of them are rich developing countries, some are poor developing countries, but they are all developing countries. They are all countries that want to industrialise themselves; all countries that demand that those supplying them should, instead of exporting goods to them, invest money in them and build up local industry. Incidentally, they are all highly protectionist countries.
They have told United Kingdom suppliers, "Instead of exporting goods to use we want you to build up investment in our countries. We want you to manufacture in our countries". As

we have been so dependent on Commonwealth markets, we have accepted that argument, and have exported, for example, enormous sums to Australia and Canada, and to South Africa when that country was within the Commonwealth. We have built up industry there, but those investments have not been compensated by anything like the equivalent increases in exports. Our exports to those countries have shown very little increase over the years—

Sir T. Brinton: There is a great deal in what the hon. Gentleman has just said about the reason for the growth of investment in the great developed Commonwealth countries, but there is another side to the argument. Very often one has, as has my own industry—carpets—a very large market in, for example, Australia. That was a big and excellent export market. If we were to hold the market we had there, we had to accept the fact that the domestic establishment of industries in Australia forced us also to invest money there to start manufacture, but I do not think that we would have done so if they had not got off the ground first.

Mr. Dell: That is exactly the point. We have been so dependent on Commonwealth markets for our exports that when Commonwealth countries have told us, "You must invest in our country and manufacture here instead of exporting the goods to us," we have felt that there was no alternative. But, unfortunately, it is still true that those investments have not been followed by an increase in exports. Over the years, exports to Australia and Canada have been stagnant, and have not been increasing in anything like relationship to our investment overseas—

Sir Harmar Nicholls: I am sure that the Committee is following the hon. Gentleman's point, and he is being consistent, but he is being critical of our overseas investment as general policy. Perhaps he will try to square that with the Prime Minister's boast in his great speech in America a few weeks ago, when he said:
It is about time the world realised that a well-run shop does not put all its wares in the window. Our gold and convertible currency reserves are only a small fraction of the real reserves of our country.
Like the United States, the United Kingdom is a country rich in overseas assets. In all,


we estimate them conservatively to amount to something like £11,000 million.
The vast bulk of this is privately owned …
That was a boast. How does the hon. Gentleman support the Prime Minister with the sort of criticism he is now implying in his argument?

Mr. Dell: I am not criticising all overseas investment. If the hon. Gentleman does me the honour to read the speeches I made on the Budget and on the Second Reading of the Finance Bill, he will see that the arguments which the Prime Minister made in New York about £11,000 million of overseas assets were made by my own honourable self in the debate on the Budget, when I made certain representations to the Chancellor of the Exchequer. I know the arguments in favour of overseas investment. What troubles me is that the genuine arguments in favour of overseas investment have been exaggerated out of all proportion by hon. Members opposite who, first, seem to have no knowledge of the figures involved—as far as they are known—and, secondly, are prepared, for purely political reasons, to exaggerate the case beyond all bearing.
As a result of representations, my right hon. Friend has introduced most important Amendments which will delay the impact of the Corporation Tax on existing overseas investment. I welcome that action, because I believe that it will give an opportunity for a thorough investigation of the problems which is so necessary, and which should have been made by the previous Government. Meanwhile, where it is clearly profitable, overseas investment will continue, to the great benefit of our economy but, perhaps, subject to the rather more careful scrutiny that it should have, but has not always had in the past.

Mr. Geoffrey Llod: The hon. Member for Birkenhead (Mr. Dell) referred in rather denigrating terms to our overseas investment. He has been rather selective, and perhaps I might correct the attitude of the Committee to the subject if I were to point out that some of our most spectacularly successful investments have been overseas, particularly in the oil industry. Hon. Members may wonder why I refer to the oil industry, even though it has

been so spectacularly successful, in terms of exports, but I know that the Chancellor of the Exchequer will agree that the relationship of the oil companies to foreign exchange and the sterling area is one of the most complicated financial problems one can have.
I remember being told when I was Minister of Fuel and Power that the value to the sterling area of the production by the British oil companies equalled the value of all the visible manufactured exports of the United Kingdom put together. I do not say that this is the case today, but that fact will give the Committee an idea of the magnitude of the contribution made to our balance of payments by this spectacular overseas investment, made many years ago and which it is necessary to keep going all the time. I am, therefore, sorry that the Chancellor in his new proposals for Corporation Tax has found it necessary to inflict a grievous wound upon the financial strength of the British oil industry, with its immense ramifications throughout the world.
It is important to state again what the Chancellor himself admitted as a result of an interchange earlier with the right hon. Member for Orkney and Shetland (Mr. Grimond), that while he has made certain concessions to the position of the oil companies he has by no means restored them to anything like the position they would have been in under the present tax system if the Finance Bill—

Mr. Callaghan: With respect to the right hon. Gentleman, I have been into individual cases, which I shall not propose to discuss, and can assure him that one cannot generalise in the way he has just done.

Mr. Lloyd: I accept that statement from the Chancellor, but I also have had some opportunity to go into individual cases. I know that there is one important case in which they have been much benefited, but there is another extremely important case where the benefit is very shadowy indeed.
Hon. Members have said in referring to overseas investment that there are other considerations to bear in mind. Having been Minister of Fuel and Power for four years, and Minister for Petroleum throughout the years of the German war, I think I should take the


opportunity to testify to the immense strength that the oil companies gave to this country in its war effort—all the engineers who produced the secret weapons, those who constructed pipelines under the Channel. All that tremendous effort came from the enormous technical resources and resources of men and skill built up by these great investments—

Mr. Emrys Hughes: That applies to the miners, too.

Mr. Lloyd: Yes, but we are discussing overseas investment, now.
I was surprised that the Chancellor should have brought in the point about manipulation as a general defence of his Corporation Tax proposals. In preparing myself for this discussion, I have consulted at least two former members of the Board of Inland Revenue, and I am told that there are two methods of dealing with manipulation. One is what is called the "omnibus" approach, which is the only defence for the Chancellor's suggestion that Corporation Tax deals with it, and the other, which I am advised on high authority is the best and the right method, is to stop up that particular abuse. Admittedly this means more work for the Revenue, but it can be done. The Revenue does it continually and I do not think there is any particular reason why it should not have been done in this case. Therefore, it is not a good argument to bring in a particular case of manipulation as a justification for a widespread change of this kind.
The Chancellor referred to small companies, and he gave the impression with regard to both large and small companies that they had nothing to fear and that there had been a misunderstanding. All I can say is that there is a very great misunderstanding indeed. I have spent many hours with accountants from the Birmingham Chamber of Commerce who are expert in affairs of Midland companies, large and small. I have a great mass of information, with which I will not weary the Committee this afternoon—it may be appropriate later on—which expresses the great anxiety particularly of those companies which may fall within the net of the close company provision, as to what will be the effect on them.
If their fears are justified and if the 60 per cent. distribution was enforced, there are a large number of companies here which have grown from very small private companies to being actually launched on the market so that they become public companies, and which believe that they could never have made this progress under the much greater distribution that would have been enforced on them by the close company provision. If there is a misunderstanding, it is most important that it should be cleared up, because I am certain that there is great anxiety in the country not merely among people who, like myself, are not expert accountants, or the owners or directors of businesses, but among very able professional accountants, solicitors who are highly experienced and who have to advise, and those who have been engaged in discussions with the Revenue about some of these matters.
I want to leave these detailed questions for a moment and approach a more general question that was raised by the Chancellor. He said that he was putting forward this proposal as one which was in principle justified. He said it was based, as we have been told again and again by the Chief Secretary and the Economic Secretary, upon the complete separation of the company and the shareholder, and that his object in this Corporation Tax, which gives expression to that principle, was to encourage retentions. I want to put an argument to the Chancellor about this. We do not accept this complete severance between the company and the shareholder. I assert that it is not necessarily by any means the viewpoint that is taken by perfectly serious economists and financial students in this or in other countries. Secondly, it is not by any means accepted by the same class of serious students that the undue encouragement of retentions is the right policy in the interests of the growth of the economy.
I have a copy of the authorised English translation of the report of the Neumark Committee which, as hon. Members know, is the Fiscal and Financial Committee. This is an official translation published by the International Bureau of Fiscal Documentation in Amsterdam. It is perfectly clear from this document that there are experts of considerable standing not only in Europe


but in the world who take a different view from the Chancellor's on the merits of the Corporation Tax. The right hon. Gentleman challenged us to produce a different view and this is what I am engaged in doing.
5.45 p.m.
In particular, this report deals with this very point as to whether or not there should be discrimination in favour of retentions. It says:
Whatever it may be, this discrimination, given the current rates of taxation and personal income taxes"—
this relates to Common Market countries—
in the opinion of many people has an unfortunate effect on economic growth"—
that is, undue encouragement of retentions has an unfortunate effect on economic growth—
and this point rather than any argument of equity, has determined the attitude of legislators.
In other words, legislators in the Common Market countries have not been influenced by any undue tenderness for the shareholder. They have been influenced by the fact that the policy which the Chancellor is putting forward is against the interests of the growth of the economy. The report goes on to emphasise that three Continental countries have been wanting to go in a contrary direction to that in which the Chancellor is urging this country to go.
I want to put to the Chancellor some of the reasons which I suggest are behind the thoughts of the experts of the Neumark Committee. The argument is really concerned with whether growth is best facilitated by a special encouragement of retentions or not. Everybody accepts that retentions play an important part in the growth of companies and, therefore, of the economy; but everybody also knows that companies grow also by the issue of shares and by raising capital on the market. The question is whether we ought to leave this as far as the Government and the Treasury are concerned, and regard these two processes as mutual, or whether special encouragement should be given to one of them. We know that the Chancellor wishes especially to encourage retentions. But the point is that the Chancellor has said that his system is specially suitable for what he

calls the second half of the 20th century. It is exactly this point that I want to contest, because I think that he has unfortunately got caught in the current fashion of so-called progressive fiscal thinking of a few years ago, which does not take account of the most up-to-date developments in business.
The point I want to emphasise is the growing importance of the capital intensive industry. We see this very much in the Midlands. Of course, it is a characteristic of the oil companies and of I.C.I. In a capital intensive industry it is true that one wants to have retentions, but I suggest that it is also absolutely vital to go to the market. The reason, broadly speaking, is this. In a progressive capital intensive industry one's needs for increased capital increase so fast. One may say that they almost increase by geometrical progression over a few years, in a way which could never be satisfied even by a strong policy of capital retentions except in a very exceptional industry.
I have had 300 companies analysed to examine this effect. I have also taken out a list of 15 to 20 of the fastest growing companies in the country. I should like to give one or two examples and if necessary I will make this list available to the Chancellor of the Exchequer. One company which was spotted by a number of people is Elliott-Automation. Five years ago the capital employed was £7 million. Today it is £34·3 million. The increase is over £27 million. The aggregate of that which has come from retentions in the past five years is £3 million. To take Davy-Ashmore, a not so well-known company in this context, five years ago the capital employed was £7·4 million. At the latest date available it is £16·3 million. Only £2·7 million of the increase of £8·9 million came from retentions. All the rest of it in one way or another had to come either from rights issues or from going to the market.
To take a different industry altogether, Laporte had £16 million employed five years ago. Now the capital employed is £37 million, an increase of £21 million, of which £2·9 million came from retentions. The rest had to come from the market or in some other way. To touch upon my favourite industry, coming as I do from Birmingham—the motor industry—Leylands five years ago had a capital


employed of £31 million and now it is £92 million. The increase is £61 million of which £15 million came from retentions. The Chancellor will therefore see that, although he may not agree with the argument, there is something serious to be considered here.
I should like to put additional points in amplification of these figures. Expansion by plough-back must inevitably be a relatively slow process. The money for expansion is being found at present-day values out of profits which have borne heavy tax. If money is raised by new issues of capital, a company is hire-purchasing its expansion. It is rewarding the person who lends the money by dividends and interest which fully reimburse him only over a long period.
To plough back heavily does not necessarily mean efficient use of funds. It could merely mean, as happened under the policy of the last Labour Government, the accumulation of balance sheet liquid resources which eventually catch the eye of the take-over king. He buys the company because the plough-back has not been efficiently employed, and I do not see that the Chancellor provides any safeguard against this but rather that he is especially encouraging it. The company which ploughs back inefficiently cannot look the market in the eye, but if the money is raised on the market its profitable use has to be demonstrated, otherwise the money will not be subscribed. There is a strong argument therefore for expansion to the greatest possible extent by new issues.
I put this point of view to the Committee as a counterpoise to the Chancellor's quite general assertion that his policy would be better for the economy. We should be well advised to submit this contention of the Chancellor's to careful analysis, and instead of bringing forward this fiscal reform as well as the Capital Gains Tax it would have been better if the right hon. Gentleman had delayed the Corporation Tax in particular for a year while all the complicated issues which are in the minds of the Committee today had the opportunity of being fully investigated by the Revenue and all the interests concerned.

Mr. Harold Lever: I follow the right hon. Member for Sutton Coldfield (Mr. Geoffrey Lloyd) on his last point to the

extent that although there are two views about the desirability of a blanket encouragement to retention I feel passionately—if passion is an appropriate emotion to bring to bear on such questions—that the blanket encouragement of retentions of their profits by companies is not a desirable thing, for reasons which I shall adduce in greater detail on the relevant Clauses when I shall put forward my case against them.
I had the honour of addressing the Committee several years ago when Mr. Harold Macmillan was Chancellor of the Exchequer and I moved the abolition of the differential Profits Tax. I carried it to a Division in the late hours of the morning and the Leader of the Liberal Party, the right hon. Member for Orkney and Shetland (Mr. Grimond), was the Teller with me. We recorded precisely no votes whatever from either side of the Committee. Time has moved on and opinion is more evenly divided now.
When I say that I am against the general encouragement of retention, I mean that blanket and unselected encouragement is not only not desirable, but can produce mischievous results. I am not impressed by the many arguments that I have heard about the percentage of companies who go to the market. The figures are often misleading because most people think of the market for the purpose of computing their figures when they issue shares, but a company goes to the market for capital in the practical sense when it goes to its bankers and gets an overdraft for the expansion of its activities.
I cannot help congratulating my right hon. Friend the Chancellor upon his remarkable achievement this afternoon in reducing the temperature in which the Committee is considering these matters. It has been a rare feat of oratorical skill by the right hon. Member for Bexley (Mr. Heath) and his supporters that he has been able to elevate matters which are fundamentally matters of administration, common sense and business judgment to the level of ideological conflict. The whole of our discussions have been conducted on the very misleading basis that what we are discussing is a deep, fundamental difference between the


parties. To this extent the Chancellor has had to be caricatured as an ogre who is exceedingly knowledgeable about tax, but malign, or as an ignoramus, stupid and pliable, because he gives concessions. I have dealt before with "Heath's fork". This is an enlargement or a particular description of that instrument.
But let us forget this ideological conflict. There is a very respectable body of opinion in all countries which favours the concept of a Corporation Tax and there has long been a respectable body, including myself, who have always favoured Corporation Tax, though I enter the caveat that I favoured it on a somewhat different basis from that produced by the Chancellor, as will emerge in this debate. There is nothing anti-business in it. Let us get it clear that many business-minded companies throughout the world operate under a Corporation Tax.
Let us come to the more serious aspects of the business. In so far as the Chancellor is affected by excessive attention to the dangers of tax avoidance and manipulation I cannot help recalling—I hope that it is not unfair to do so—what the late Aneurin Bevan said, and he cannot be accused of excessively Right-wing predelictions. I remember his saying to me, "Of course, everyone knows that the present system works because of the anomalies". These have acted in the past as something of a safety valve.
If my recollection of the minority Report of the Royal Commission is correct—I have not read it for quite a long time—Mr. Kaldor repeated, with approval, the ancient dictum that there is no obligation upon the citizen so to arrange his affairs as to attract the maximum amount of tax. Therefore, I do not think that we should occupy our minds too much with these questions.
6.0 p.m.
When we discuss these matters which have caused a great deal of public concern in relation to close companies, it is fair to make this point. I am not myself clear why the Chancellor and those who favour general encouragement to retain profits should find it virtuous, when a rich man holds shares in a public company, to tell that public company that

it would be desirable that it should retain as much as possible of its profits and rather naughty and even mischievous that it should increase its dividend, yet, in the case of a close company, to imply the very reverse. The logic of it does not seem to me completely compelling.
Having said that, however, and having remarked that there has been widespread public concern about close companies, I agree with my right hon. Friend that a great deal of this concern will prove not to have been justified. I hope that the Committee will notice the careful language I have used, correctly, I think, in making my prediction. [Interruption.] I hear one of my hon. Friends say that all the concern will prove not to have been justified, including my own concern, no doubt. I have every confidence that this will be so.
At the moment, however, the reason for this concern is worth a moment's examination, and if we can eliminate excessive party—

ROYAL ASSENT

6.2 p.m.

Whereupon The GENTLEMAN USHER OF THE BLACK ROD being come with a Message, The CHAIRMAN left the Chair.

Mr. SPEAKER resumed the Chair.

Message to attend the Lords Commissioners:

The House went:—and, having returned;

Mr. SPEAKER reported the Royal Assent to:

1. Industrial and Provident Societies Act, 1965.
2. Rivers (Prevention of Pollution) (Scotland) Act, 1965.
3. Cereals Marketing Act, 1965.
4. Dangerous Drugs Act, 1965.
5. Airports Authority Act, 1965.
6. Museum of London Act, 1965.
7. War Damage Act, 1965.
8. Teaching Council (Scotland) Act, 1965.
9. Criminal Evidence Act, 1965.
10. Development of Inventions Act, 1965.


11. Glasgow Corporation Order Confirmation Act, 1965.
12. Barclays Bank D.C.O. Act, 1965.
13. Walton and Weybridge Urban District Council Act, 1965.
14. Saint Anne, Soho Act, 1965.
15. Liverpool Exchange Act, 1965.
16. Port of London Act, 1965.
17. Saint Mark, Camberwell Act, 1965.
18. Durham Markets Company Act, 1965.
19. Saint Mary, Alverstoke, Burial Ground Act, 1965.

And to the following Measure, passed under the provision of the Church of England Assembly (Powers) Act, 1919:

Benefices (Suspension of Presentation) (Continuance) Measure, 1965.

FINANCE (No. 2) BILL

Again considered in Committee.

Question again proposed, That the words "1964 and 1965" stand part of the Clause.

Mr. Lever: I was dealing with the alarm and anxiety which has been expressed in the Committee and outside in relation to close companies. I expressed the hope that this alarm would prove to have been unjustified when we have finished our efforts in the Committee; but it is right that I should say that the alarm was absolutely justified by the wording of the Finance Bill itself.
I have already explained that I do not regard a great many of these matters as party political issues at all, but as matters of good sense, administration and business judgment. I think it right to say that the close company provisions, when I first read them, caused me to think—if I may paraphrase—"I do not know what they will do to the political enemy, but, by heaven, they frighten me".
Being alarmed myself, I can understand that the alarm expressed by right hon. and hon. Members opposite and by people in the country generally would seem to have been justified by the mode of presentation.

Sir Kenneth Pickthorn: The hon. Gentleman will remember, and I

think that he should remind the Committee, in all fairness, that the Duke's soldiers utterly conquered the enemy.

Mr. Lever: That is entirely in point. I have no doubt that a similar result will occur here. They will be utterly conquered, and conquered even by our argument rather than by any fiscal or physical violence exercised against them.
What were our complaints? First, we thought it somewhat extraordinary that a Bill which brought in a Corporation Tax and justified it on the ground that we wished to encourage retentions took to itself what, on its wording, were the most Draconian powers for coercing companies into paying dividends that had ever been seen in a piece of British financial legislation. On the one hand—this matter was raised by the right hon. Member for Altrincham and Sale (Mr. Barber)—we noticed that the onus of proof was put upon the taxpayer to justify the retention of funds in his company and not paying 60 per cent. out of profits.
However, I hope that the Chancellor, now that he has considered this matter fairly, will produce an Amendment which I at least will welcome. I should not rebuke him for it, whatever the right hon. Member for Bexley (Mr. Heath) may say about his putting down yet another useful Amendment. The more useful, conciliatory and constructive Amendments my right hon. Friend puts down, the better.
The right hon. Member for Bexley may have a different view, because one by one as these Amendments register the public are coming to realise that however interesting, exciting and enjoyable the emotional oratory in this Committee may be, the reality is that the Chancellor, dealing with a complex and difficult subject, is necessarily not able to publicise all his proposals before he makes them to the House of Commons because of the confidential nature of the Finance Bill, and that he is openmindedly receptive to all the criticism which he receives from all quarters, both inside the House of Commons and outside it, and is ready to meet legitimate complaints when they arise.

Mr. Gower: Might it not also be inferred by some people that the Chancellor is trying to plug the gaps in a rotten dyke?

Mr. Lever: I do not accept that at all. My right hon. Friend the Chancellor has throughout acted in the best of good faith. He has put forward proposals. When a legitimate and logical case has been made against them, he has made every effort, sometimes even when he has not been convinced, to meet any reasonable grievance which is felt concerning them.

Mr. Edward Heath: Of course, we do not question the Chancellor's good faith. Is not the hon. Member's argument slightly weakened, however, by the fact that all the representations made to the Chancellor on the Corporation Tax by individual companies were made before the Bill was published and that the Amendments that the Chancellor has now put forward cannot possibly be in response to anything that has been said in this Committee because we have not yet discussed those Clauses of the Bill?

Mr. Lever: The Chancellor has shown by his past conduct that I am justified in hoping that as we come to those Clauses of the Bill, useful, constructive and fairminded Amendments will, one by one, make their appearance and remove the kind of grievance and anxieties which I have felt and will continue to some extent to feel until the Committee, by accepting those Amendments, removes that anxiety.
The first thing that troubled me and many business folk outside, as well as many right hon. and hon. Members, was the contrary to the practice of the Inland Revenue in the past, it looked as if a company would be compelled to pay a dividend and that if it did not wish to do so and felt that it needed money for the legitimate expansion of its business, it would be compelled to prove its case instead of the Inland Revenue being compelled, as was always the case in the past, to discharge the onus or proof.
I hope that my right hon. Friend removes this provocative, unjust and anxiety-creating onus change. I hope that the onus of proof will be restored to the Inland Revenue. It is not as great a matter as it seems in words. I agree that in practice there is not so much to be attached to it. Practice, however, means practice before the Special Commissioners, who are a model of judicial im-

partiality although they are the Special Commissioners of the Inland Revenue.
For everyone who chances his arm before the Special Commissioners, however, there are thousands who settle their cases under a misguided concept of what their rights and their risks in this matter are. It is, therefore, utterly important that although sophisticated people like my hon. Friend the Chief Secretary to the Treasury realise that there is not all that importance to be attached to the onus of proof, the average member of a board of directors of a company regards it as one of the bulwarks protecting him from an oppressive exercise of these unusual and coercive powers. It is of the highest importance that the onus should be restored to its original position. The Chief Secretary and the Government cannot have it two ways. If it is unimportant in practice, let it be put back where it was before. Let the unimportance which has been so reassuring to company boards be restored.
Secondly, most unfortunately in the words used—I shall not recite them, because we have not yet come to the Clause—a different verbal test was put upon the board of directors in respect of justification of these retentions from the very well-understood test which prevailed under the old law. I am sure that the Chancellor of the Exchequer had no intention of altering the standards merely because the words had been altered and that this was an oversight, an error or an unintentional non-repetition of the exact words used on previous occasions.
I am fortified in this belief because the White Paper, I recall, used more or less the old words and the Chancellor himself on Second Reading used the old words. The old words were much more comforting to me and, I think, to most business men who had to interpret them. They said, in effect, that if a business man was required reasonably, for the purpose of expansion and development of his business, to retain profits, he could not be compelled to distribute them. In those circumstances, as the words have been used by the Chancellor twice and have been used, I think, in the White Paper—I hope that I am not inaccurate in supposing that more or less the words required are used in the White Paper—why not let us have them in the only place which really matters, namely, in


the Bill itself? So let us have them back at the earliest possible moment.
The other matter, which is, perhaps, even graver—and it would be wrong for this to escape comment from this side of the Committee—is that there are in the regulations concerning close companies provisions which can be described only as penal, oppressive, harsh and unjustifiable. I have not the slightest doubt that because this description is the only description that can fairly and honestly be applied to those provisions, many citizens, business men and even politicians on the benches opposite in good faith believed that the Government had rather savage intentions towards private profit-making industry. It is only right that I should say it.
If that exaggerated view was taken of these provisions, the Government have only themselves to blame. [HON. MEMBERS: "Hear, hear."] I am not saying anything hostile to the Government, because I am a loyal supporter of them. [Interruption.] It is helpful to a Government to defend them from the more serious charge by making them plead guilty, however reluctantly, to the lesser charge.
There are two charges against the Government. One is that they intend harshly, oppressively and unjustly to deal with private companies, because that is how the wording of the Clauses of the Bill appears in the eyes of every sensible person who can read and understand. That is what the words mean if taken literally. If the Government were guilty of that charge, I should not be standing on these benches defending them.
The Government are guilty, not of that charge, but of a lesser charge of presenting these matters in the Finance Bill in a manner which is likely to be so understood, although I have not the slightest doubt, and I never have had, that the Government would make the necessary Amendments and corrections to put these matters in order. [Interruption.]
I do not know why the Chief Secretary should say that that is unhelpful. He can please himself. In the eyes of informed opinion, one possibility is that the Government will be convicted for these iniquitous provisions in the close company legislation. They should never

have appeared. Informed opinion will convict the Government of having mistakenly, in their legitimate anxiety to get these things moving, put down these provisions in a form which had to be amended later, or it will convict the Government of the more grave charge of wishing to injure industry.

Mr. Diamond: My hon. Friend must have misheard a sotto voce comment which I made to myself if he thought that I said he was being unhelpful. What I said was, "Very helpful". I repeat that my hon. Friend's comments on this occasion, as on every occasion—

The Temporary Chairman (Sir Herbert Butcher): I should be grateful if the hon. Gentleman would address the Chair.

Mr. Diamond: I beg pardon, Sir Herbert. I was only repeating that what my hon. Friend had said on this occasion, as on previous occasions, was most helpful. I only add that if he, with his great knowledge both of the law, and, in particular, of Income Tax law, has completely misread and misunderstood the Clause, it is quite understandable that other less well-qualified people should do the same.

Mr. Lever: I cannot ask for a more generous statement than that.
I do not want to be touchy about this, because I took it upon myself in advance of any assurances from the Government to tell everybody I knew within reach that since the Government are a fair-minded, reasonable Government, as I firmly and most sincerely believe them to be, and since my right hon. Friend the Chancellor is a fair-minded and reasonable man and his Chief Secretary has those qualifications and also great knowledge of the subject, all these matters would be put into order before we finished the drafting.
I am sure that when we come to deal with the Clauses on close companies, what now appear as threatening matters—not merely the onus of proof on Surtax and Income Tax, not merely the question of the tests for justifying coerced distribution, but, much more serious, matters like the definition of participators, the charging of loan interest to profits and matters of that kind—will


be dealt with by the time that the Committee has finished its labours.

Mr. Daniel Awdry: May I put this point again to the hon. Gentleman? If the Government do not meet the hon. Gentleman on these points, does not he agree that there is a quite strong case to postpone this Clause until they have been discussed over the next year?

6.30 p.m.

Mr. Lever: The hon. Gentleman is making hypothetical assumptions which are the reverse of those which I would make. I might just as well say to him that if, to my entire satisfaction, the Government meet the points which I have raised, right hon. and hon. Members opposite should apologise for the maligned intent so repeatedly and loudly assigned to the Government.
Irrespective of the example given by the right hon. Member for Altrincham and Sale, I would ask the Government to look again at the question of preference dividends and the penal operation of the Profits Tax in that regard. While I welcome the Chancellor's statement on overseas investment, I feel that he has gone a long way to help those companies affected by this new rate of tax. I should not have charged the tax in this way. I should have brought in a high rate of Corporation Tax and virtually no withholding tax and then we would not have had these problems about overseas companies and investment allowances. I wrote about this in articles before the election which, unhappily, did not appear to be as convincing as I thought they might be. As my right hon. Friend has decided on this kind of Corporation Tax, I think that he has demonstrated in the most effective and practical way that he is not hostile to overseas investment and is not narrow-minded or politically unable to see the difficulties.
I must say a few words about overseas investment. It is no good lamenting the lack of overseas investment in general without qualification. Although I am in favour of overseas investment, a precondition of it is that we make the necessary exports to finance it. If we do not have an export surplus, we cannot conceivably have overseas investment in balance for any length of time. All that

we should be doing would be borrowing money with our left hand and lending it with the right hand. That is not a sensible policy.
What I lament is not so much the decline of overseas investment as the decline of exports which makes it impossible for the Chancellor of the Exchequer to allow the present level of overseas investment to continue. We are all in favour of overseas investment and exports, and we all lament the decline in exports and in our overseas investments, but we must get our priorities right, even in lamentation.
I am very grateful to the Chancellor for reducing the discussion to its proper level. As I said before, this is not a matter for ideological conflict. I should like to pay tribute to the right hon. Gentleman, since I have criticised pretty severely and without restraint many of the things that he has done. As I have said before, I am Vice-Chairman of the Wider Share Ownership Council. I am sure that those who attended the conference at the Treasury with me when we put our view to the Chancellor of the Exchequer would say that, by turning out with his entire Treasury staff, the Chief Secretary and the Financial Secretary, my right hon. Friend showed tangibly and by his manner of approach that he was a fair-minded and constructive Chancellor.
Do let us end this fairy tale about my right hon. Friend being the bogy of business. It cannot be in our country's interest that this concept should get abroad or that it should have wide and destructive currency. I am very grateful to him for his fine and moderate presentation of the Government's case.

Mr. David Price: The hon. Member for Manchester, Cheetham (Mr. H. Lever) has once again performed that act which he performs with such superlative skill, namely, to attack the Government and to rip their Bill to pieces, but to do it with utter political fidelity. It is something which many of us would admire in a distracted marriage. If more fighting husbands and wives were to follow the example of the hon. Gentleman, I am sure that there would be far fewer cases in the divorce courts.
Secondly, the hon. Gentleman went through a devastating list of criticisms


of the Bill to such an extent that the intervention of the Chief Secretary made me wonder whether I was sitting in the Committee of Ways and Means or looking through the looking glass at the high farce taking place over the meaning of words. The hon. Gentleman, having gone through this devastating catalogue of criticism, proceeded to say, "But, of course, all this will come right". My right hon. Friend the Member for Bexley (Mr. Heath) intervened and pointed out that we had not yet reached the details of the Clauses in question, but the hon. Gentleman said, "My hope is eternal and so is my confidence in the Treasury Bench".
From the country's point of view, I sincerely hope that the hon. Gentleman's faith is rewarded, but I suspect that the odds are not in his favour.

Mr. Harold Lever: I expressed that hope only in relation to the close companies and not in relation to questions like the retention of profits in respect of which the Government's policy is fairly clear.

Mr. Price: If there is a complete reversal of Clause 72, I shall be delighted to shake the hon. Gentleman by the hand and to say that in one matter at least hope has been rewarded. Certainly, there is not much else left of this Government. As we go through this bad Bill which has succeeded a bad Budget, we reflect on the fact that this Administration, unlike good wine, does not improve with keeping.
One of the justifications used by the Chancellor of the Exchequer for introducing this Corporation Tax was the manipulation which, he said, had been going on under the old Income Tax code. My right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd) made some observations on this.
May I put this to the Treasury Minister who is to reply? If the Income Tax code is so muddled, so imprecise and so imperfect, why have the Government based nearly all the rules for the Corporation Tax on the existing Income Tax principles as embodied in Clause 49? I remind the Committee of what subsection (1) of Clause 49 says:
… the amount of any income shall for purposes of corporation tax be computed in accordance with income tax principles, all questions as to the amounts which are or are not to be taken into account as income, or in

computing income, or charged to tax as a person's income, or as to the time when any such amount is to be treated as arising, being determined in accordance with income tax law and practice as if accounting periods were years of assessment.
This is very relevant to the Amendment. I understood the Chancellor of the Exchequer to say that the existing Income Tax principles were unsatisfactory. Therefore, as he is basing his Corporation Tax on the current Income Tax structure, Income Tax principles and the Income Tax methods of assessment, if he is right in his charge, the whole matter must be sorted out again and a much larger Bill than this will have to be presented which covers the whole scope of the Income Tax Act, 1952.
For the Chancellor of the Exchequer cannot have it both ways. Either the principles of our Income Tax code are unsatisfactory and muddled and an evader's paradise, as he suggested—if that is so then there is every reason why the Government should support us in this Amendment to defer—or, if, on the other hand, they feel that the Income Tax principles are sound, as they have suggested in Clause 49, then that argument used by the Chancellor for introducing the Corporation Tax is entirely irrelevant.
The Chancellor said that overseas investment had to be more selective. He suggested to the Committee that a certain amount at least of our overseas investment to date had gone either into the wrong countries or into the wrong enterprises. The hon. Member for Birkenhead (Mr. Dell) was pleading for more information. Surely if the Government are to put a great five-year plan before the country they should be capable of answering the question I now wish to put to them.
In what countries, or in what fields of activity, has this country been having excessive overseas investment? Has it been in mining? Has it been in tea? Has it been in rubber? In what countries has it been? I believe this is a very fair question to ask, in response to the Chancellor saying that we should be more selective. It is right to ask in what respect we should be more selective. In what direction does he want to see us investing and in what direction he does not want to see us investing?
Or is it simply to be an injunction to invest less overseas? The argument of


the hon. Member for Birkenhead seemed, broadly speaking, to be this: in the under-developed countries we do not get as good a return for investment as we do in the developed countries, and, therefore, we should be encouraged to put our money into the developed? Is that the argument of the Chancellor? May be it is a softening up for the final capitulation of the Prime Minister when he leads us into the Common Market.
The Chancellor struck me, in some of his comments on how overseas investment ought to be going, as imagining that we live in a purely free trade world where there are no political barriers to trade. The fact is that it is the experience of many of us, certainly on this side of the Committee, and, I suspect, one or two on the other, that many a company has had to invest abroad in manufacturing plant in support of its investment and in support of its current market there, not because it wanted to.
In the ideal world of no political barriers and no nationalism it would be reasonable to suppose that a firm could make its product cheaper in British and sell it, let us say, in Australia, cheaper than manufacturing it there; but I know from my own experience that this is not so in the world as it is. Let us take the case of Australia, where one had the choice, of either losing the market one had built up over many years, or investing out there. But one could more cheaply in Britain manufacture the particular product I have in mind, and ship it all the way to Australia, than produce it locally out there.
The Tariff Board in Canberra, however, was only interested in protecting indigenous infant Australian industry. This illustration is applicable over a whole range of other countries. Therefore, I insist that there is not a simple statistical correlation between exports from this country and the return on investment capital exported from this country. The thing is a good deal more subtle than that.
6.45 p.m.
The Chancellor made a great point of the previous Conservative Administration's inability in carrying out tax reform.

I am not against tax reform, but I must confess to the Committee that the more I have studied tax reform the more I have found that one starts by being attracted to the idea, but the more one goes into it in depth the more one comes to the almost inevitable conclusion that most of the alternative taxes recommended by academics have at best only marginal economic advantages over existing taxes.
To my mind those marginal advantages are usually substantially outweighed by the confusion and uncertainties which they are likely to cause not only to the business community, but, I believe, even to the tax inspector himself. To my mind, changes in the structure of taxation must not only appear attractive to a senior wrangler, but they must also make sense to the ordinary businessman, to the ordinary taxpayer, to the ordinary accountant and to the ordinary tax inspector, and whatever may be true or not true in politics I believe that in taxation it is the case of the devil you know you prefer, because people deploy their arrangements over a long period of time on the basis of the current structure of taxation.
A further thought I have had on radical tax changes is that what most people mean when they say, "We want a radical change in our taxation system" is that they want to pay less tax. This is the element in which the country wants radicalism; they mean they want lower taxes, and if the Chancellor were offering business Corporation Tax at a rate of 10 per cent., whatever would be the anomalies and the nonsenses in it, we would all accept it because we would be paying really substantially lower taxation. So I would ask right hon. and hon. Members opposite to take in mind that when people do ask and agitate for tax reform it is really lower taxation they are agitating for.
None the less, I personally believe that there are certain fields in which it would be right to change some of our taxes—though it would be quite out of order, I fear, to pursue that theme on this Amendment. So I merely make the point that I do not think that this Corporation Tax is the right way to do it. In respect of this tax we on this side of the Committee—indeed, the hon. Member


for Cheetham, too—are, I think, being a little unfair to the Chancellor of the Exchequer in critising his responsibility for this new tax—or, indeed, criticising any of his colleagues on the Treasury Bench. Because those of us who have studied tax reform proposals in the last decade or so have no difficulty in identifying the authorship of this new Corporation Tax. It is so clearly signed with the creative genius of Dr. Nicholas Kaldor. Those of us who have studied and taken seriously the minority Report of the Royal Commission have found there the blueprint for this new tax. I am not surprised at what has happened. I think it is unfortunate, though, that the harassed Chancellor of the Exchequer who has divided responsibility with the Chief Secretary for running the economy, and all the emotional family problems within the Government which that split responsibility must produce, has got to come here to defend this new tax.
I was much attracted to the idea of the right hon. Gentleman the Member for Orkney and Shetland (Mr. Grimond), that we should defer the study of this tax rather longer; it should be taken out of the Finance Bill and put into a separate Bill, that we should discuss it in a Committee to which the author of this tax could come to explain the many features which clearly have escaped, at this stage of play, the comprehension of the Treasury Bench.
I am not alone in my criticism. One can read it in any responsible newspaper. As the Committee will recall, it was the Economist of 1st May which headed its article on the Corporation Tax with these words:
It is more and more apparent that Mr. Callaghan's new system of taxation is a mistake.
Later in the article, we read this:
The awful truth is that the most complicated tax change in recent British fiscal history is being introduced under an air of half expectation, even among some of its godfathers, that it may conceivably prove to be the most almighty danger".
Well, Sir Samuel, this is Dr. Kaldor running true to international form. The Prime Minister, in one of those many advertisements that were endorsed with his photograph on the run-up to the General Election said this:
We must streamline our tax system so that those who earn money will get a better deal. We welcome people getting reward for their work.

The more one studies this Bill the hoarser is one's laugh at those remarks. My only complaint with my right hon. Friend's Amendment is that it is only to defer this Corporation Tax for one year. As far as I am concerned, in the form in which Dr. Kaldor invented it, the Corporation Tax should go permanently into limbo.

Mr. Christopher Rowland: The last time I spoke in this Chamber on this subject was during the Second Reading of the Finance Bill, when I discussed the effect of the Corporation Tax upon overseas investment. On that occasion I had the honour to be interrupted three times by the Chancellor of the Exchequer and, although he is not here at the moment, I should think that if I were interrupted three times tonight by the Treasury Bench I should have failed in my desire to convey my general approbation of the announcement made last night on this particular subject.
What the Chancellor has proposed is that the overspill arrangement should not only be extended in time from two years to three years in one category, and from five to seven years in total, but more importantly that there should be full relief for the first three years instead of a somewhat grudging partial relief for the first two years. I believe that the right hon. Member for Altrincham and Sale (Mr. Barber), in his speech earlier today, was grudging and churlish in not conveying the pleasure of people on both sides of this Committee at the concession which the Chancellor is proposing. I trust that as a result of this the Chancellor will find, however trying his candid friends may be, that they are preferable to his ungenerous opponents.
There are five advantages I can see at a quick examination of the Chancellor's proposals on this particular front. The first, and I think it is the most important one, is that he has given time for further examination of the long-term effects of this tax on overseas investment. Under the original proposals time was very limited, because even in the first two years the relief was not full relief. Now we have at least three years of full relief during which this subject can be examined more closely. It gives us time to decide what we can afford as a nation in this particular field. It gives us time to


examine more carefully the rôle of private investment, particularly in the underdeveloped countries as part of our general aid programme. It also gives us, and this is very important, time to assess the importance of overseas investment in sustaining and in a sense protecting the market for British exports.
When I spoke on this before, the Chancellor suggested that I had not given enough facts to prove that there was a correlation. I said then, and I say again, that we need more facts. My hon. Friend the Member for Birkenhead (Mr. Dell) said this earlier and I was pleased to note that last night, speaking in the Commonwealth Affairs debate, the Prime Minister himself said:
Within any given total of investment, there is an important distinction between direct investment, which creates new assets and which very often helps our exports, and that kind of investment which simply increases portfolio investment".—[OFFICIAL REPORT, 1st June. 1965; Vol. 713. c. 1650.]
I believe that the representations which have been made from all sides of this Committee and outside are beginning to have an effect on official thinking. We need a real study to find out whether there is a connection between exports and investments overseas.
The position as it was three weeks ago during the Second Reading debate was, as I put it then, that we had sentence first and verdict afterwards. Now, as a result of last night's concessions, we have sentence suspended and verdict being determined. I think this is a significant advance.
The second reason I applaud what the Chancellor is proposing is that it now puts overseas investments on all fours with investment in this country for at least three years. We have had a long, almost theological argument about whether there was bias in favour of overseas investments, as the Chancellor has said, or whether it was neutral or whether he was instituting a new bias against overseas investment. Whatever the rights or wrongs of those arguments, I believe that as a result of last night's concessions the Chancellor has removed, for at least three years, the potential bias against overseas investment.
The third reason I welcome the proposal is that it will stop for at least three

years the possibility of cheap take-overs of British assets overseas, particularly of companies which have tended, for various reasons, to distribute a high proportion of their profits in dividends. This is a threat which has been deferred for some years to come. My fourth reason for welcoming the proposals is that under the proposed concessions new investment will still be deterred because new investment will have no profit record on which overspill can be computed. I think the effect of this will be to make new investment, as distinct from existing investment, much more selective.
Fifthly, the Chancellor has begun to recognise that there should be some distinctions in the field of overseas investment between different categories of investment. He has made distinctions already in these proposals between direct investment and portfolio investments. Many of us have asked him to do that and now he is doing so. He has made another less important distinction, namely, between investment in Commonwealth countries and investment in non-Commonwealth countries. Now we have established there can be this degree of sophistication in the incidence of Corporation Tax I hope that the Chancellor, in the years to come, will feel free to move on to try to establish some distinction between investment which helps British exports and investment on which there can be very little evidence that exports are helped.
I believe that this distinction could be drawn. Clearly this is something which the Chancellor and his advisors will have to look into.

Mr. William Shepherd: Will the hon. Gentleman say why a simple device of exchange control could not achieve all these aims? Surely it is not terribly difficult to do it by this method which is already well established and effective.

Mr. Rowland: If the hon. Member had been at the Second Reading debate when I was speaking he would have heard me say this. I suggested that there might be some direct controls which would have this effect. I am only underlining what I said before.
Having praised the impact of the Chancellor's proposed concessions, I would make three reservations. The


most important is that the concessions will still be transitional. They are much better than they were and, in particular, they give us much more time in the opening three years to review the whole subject, but they are still transitional. What I hope is that by the granting of time we, on both sides of this Committee and as a nation, can decide whether or not we should go on investing to the same extent in the years to come. At the moment I reserve judgment on this. It is still transitional and not permanent and I hope that, if it is proved that it should be permanent, it will be made permanent.
My second reservation is that, perhaps by accident, companies which are increasingly successful will not get the full effect of their successes, because their relief will be granted on the three static base years. I should like to ask the Chancellor or his colleagues whether they would care to look at the possibility of a moving average on which relief could be based.
The third reservation, which relates to the second one, is that the proposal still hits new investment recently made but not yet come to full fruition, because there are no figures on which overspill can be granted. These are comparatively small points, but I trust they may be dealt with in future Budgets.
I have one or two comments to make about the presentation of the Chancellor's concessions. The document which hon. Members were given last night contains some references to shareholders. It says that there are
certain companies operating overseas whose shareholders are likely to be adversely affected by the introduction of the Corporation Tax.
It also says that companies operating overseas
might find it necessary as a result to reduce their dividends, and this might cause hardship to the shareholders.
Speaking from these benches, I was surprised to find such public solicitude for shareholders, because it is not only they who are affected by these concessions. I think that the main advantage of my right hon. Friend's proposal is that it helps the companies, as distinct from their shareholders, and this is a meaningful distinction in the modern world.
During my Second Reading speech I referred to the possibility that companies would continue to pay out dividends to

the same extent as before to their shareholders, at the cost of cutting retentions. I think that it was the retentions point which worried me more than the dividends received by shareholders. Many of the companies about which we are talking employ vast numbers of people overseas. They are integral parts of the economies of the countries in which they operate, and it was in that sense, more than solicitude for the shareholders, that I was concerned that we may be embarking on courses which may be undesirable.
7.0 p.m.
My second small point about the presentation of the proposals—and this is not really my right hon. Friend's fault, but is due to the way in which the Press has treated it—is that there have been references to the Government giving away £60 million over three years in concessions. They are not giving anything away. They have only decided not to take it. I should not like to think that we had started giving money to shareholders in dividends, or to companies in retentions. Those are two small points on the presentation which I hope my right hon. Friend will bear in mind.
The right hon. Member for Altrincham and Sale referred to this proposal as a "dollop of transitional relief" in what I think was probably intended to be a deprecatory comment. I think that this is a major concession to the fair representations which have been made to the Chancellor by hon. Members on both sides of the Committee, and by people outside. As I trust that my right hon. Friend is going to be in office for many years to come, I trust also that he will treat with equal fairness the evidence, if evidence there be, that there should be permanent relief for overseas investment which can be shown to be of benefit to Britain. Now that in the space of two or three weeks these fair concessions are being made, I hope that in the space of two or three years further concessions will be made if they can be shown to be fair.

Mr. Henry Brooke: The speech of the hon. Member for Meriden (Mr. Rowland) was a gallant effort to make the best of the Chancellor's last-minute concessions, but it left me with the impression that he was still seriously


worried about the provisions of this Bill and what it might do to the economy if it were not further amended. I think that his anxiety is shared by the majority of those present in the Committee.
I go back to what the Chancellor said in his speech a couple of hours ago, when he stated that when a country was in balance of payments difficulties it was necessary for it to be selective in its overseas investment policy. I would have thought that that was so axiomatic a statement that it was almost a platitude. So far as I am aware there is no difference of opinion between the two sides of the Committee on the necessity, in present circumstances, to be selective in our overseas investment policy.
But what the Chancellor failed to show was that this Corporation Tax was in any way an ideal method of establishing selection. Nor did he attempt to answer the question put to him by my hon. Friend the Member for Walthamstow, East (Mr. John Harvey), who asked why it was necessary, in order to control future overseas investment more closely, to hit so hard at existing companies trading overseas. In this debate we have not so far had a trace of an answer to that question from the benches opposite.
To judge from previous speeches by the Chancellor, I gather he feels that up to now the tax system has been too favourable towards overseas investment compared with investment at home. In other words, he thinks that companies trading at home have not been fairly treated in relation to companies trading overseas, and, to correct this discrimination which he thinks he has detected, he means to punish those who are trading overseas. Surely what the Committee must have regard to is whether British companies trading overseas are treated fairly in matters of taxation relative to foreign and other competitive companies trading overseas.
It is no satisfaction to an oil, mining, or any other company to be told that a meticulous examination has shown that the taxation imposed on it must be assimilated in some respect with the taxation it would have to bear if it was operating in Britain, if the effect of that is to tax it more severely than similar companies, which are subsidiaries of American or other foreign concerns, are taxed. All

these British companies are trading in highly competitive fields, and if the right hon. Gentleman cares about the future of the economy, he must have regard to that.
Nor is it enough for the right hon. Gentleman to reply that he must be performing an act of fairness because he is now seeking to assimilate our tax system to that in use in America and a number of other countries. What matters is the rate of tax, the application of the taxes, and the flexibility of the taxes. If anybody starts making a serious comparison between the new system of company taxation embodied in the Bill and the system of taxation to which American and other foreign companies are subjected, he will find that there is a rigidity and a severity in the Bill which is by no means matched by the taxation imposed on foreign companies which will be competing with ours overseas. This is the essential point, and this is the point to which, I hope, the Committee will give careful regard in our future debates.
I propose now to address myself directly to the Amendment and to tell the Committee why I shall vote wholeheartedly in favour of it, so that there may be longer time for the Government to think. We must not concern ourselves only with what British companies will do, and how they are going to fare under the Bill. There are many foreign-owned businesses in the United Kingdom. We have here many high-profit-earning companies which are subsidiaries of American and other foreign companies.
It seems to stand out a mile that, the moment this Finance Bill was published, any alert foreign-owned company in this country will have ordered its tax advisers to study what the effects of the new taxation system on it would be likely to be, and how it could lessen its tax liability. In other words, it will divert its energies to seeing whether it can manipulate its affairs so as to reduce its tax liability. In his speech today the Chancellor took great credit for his argument that the Corporation Tax would discourage manipulation. But in this field it will encourage it. So far as I can see, the subsidiary of an American or other foreign company trading in this country will be able under this Bill to attract to itself specific tax advantage if it changes its status from that of a subsidiary to


that of a branch of its parent company. At present, as a subsidiary, about 56 per cent. of its profits is payable in Profits Tax and Income Tax. If it converts itself or gets its parent company to convert it from a subsidiary into a branch, the only United Kingdom taxation to which it will then be liable will be Corporation Tax at a rate between 35 and 40 per cent.
That means that, if it makes this change, it will very substantially reduce its liability to United Kingdom taxation. I cannot tell—nobody but the Inland Revenue can tell—what will be the loss of revenue to the United Kingdom Exchequer if every foreign-owned company in this country sets about making this change. Will it be £15 million, £20 million, or £25 million? Of course, the shareholders elsewhere will have to pay tax to their own Exchequers, but the United Kingdom Exchequer will lose. I would certainly argue that we should postpone the coming into force of the Corporation Tax for a year until we know what alternative and additional taxation the Chancellor proposes to impose on British citizens, in order to make up for this large loss of tax from foreign companies which, by this Bill, he is jettisoning.
This concerns, of course, not only loss of tax. The Chancellor said that the basic consideration for the Committee must be our attaining a favourable balance of payments. If he is throwing away tax hitherto paid by foreign companies in this country, that is not only a loss of many millions of pounds to the Exchequer; it is a loss of many millions of pounds to the balance of payments. On that account, too, the Committee deserves an explanation of the special action which the Chancellor intends to take in order to seek to remedy the direct damage which he is doing not only to the United Kingdom Exchequer but to the United Kingdom balance of payments by these ill-considered changes.

Mr. William Baxter: I think that there is a great deal of validity in the point made by the right hon. Member for Hampstead (Mr. Brooke). I am not in a position to say whether the Chancellor has this in mind when framing his tax proposals, but I know that this advantage to a company

in this country which is converted into a branch, rather than a subsidiary, can work both ways. The advantage could be not unlike the advantage which Northern Ireland gives to industrialists seeking to set up industries in that country. As a representative of an area now scheduled under the Local Employment Acts, I would say that if American or French industrialists could be attracted into the area and some other of our depressed areas by special tax concessions, it might be a good thing in the long run.

Mr. J. Bruce-Gardyne: Would not the hon. Member agree that the Chancellor is doing precisely the opposite by removing or shading down investment allowances which would attract firms into areas in Scotland like those which he and I represent?

7.15 p.m.

Mr. Baxter: I am answering the point made by the right hon. Member for Hampstead, by showing that if firms altered their definition of companies in this country when this method of taxation is brought in, it could work both ways. I think that the right hon. Member recognises, as he has said, our grave problem of the balance of payments. There can be no doubt that it must be brought into focus, irrespective of how we do it. We must try to bring the balance of payments to a more realistic state of affairs. If the curtailing to some extent of the outflow of money for the industrialisation of other parts of the world would help, it seems to me that it might be a very good thing.
If this tax had been introduced some years ago and investments in overseas countries had been made more selectively than they have been in the past, certain industries which I seek to represent would still be in existence. They would have been helped if a more selective method of promotion of foreign investment had been operating. I would illustrate the point by instancing the foundry industry, or the clothing industry or cotton mountings.
The right hon. Member for Bexley (Mr. Heath) was President of the Board of Trade when I took up one of these problems with him. The problem was that financiers from this country had


financed the establishment of a business in Australia and New Zealand. Because of this, the business, which used to be in my constituency, has gone out of existence. This has happened in the manufacture of clothing for India, that of shawls for the Indian market. The Banton Mill operated for many years, but when the industry, financed by British capital, established in India itself—there may be some justification for this—the people of that village ceased to have jobs.

Sir Arthur Vere Harvey: Is not the hon. Member taking a very narrow view of the whole issue? He quoted Australia, but if B.M.C.—or Nuffield as it was until 12 years ago, when it started making motor cars—had not gone to Australia, General Motors would have had all the business. Remittances have come back in the form of dividends and orders for equipment worth considerable sums. The hon. Gentleman cannot draw the conclusion that because his constituency lost a foundry and it went abroad, that is a bad thing for the country. France or America may have set up a foundry and Britain have got nothing at all.

Mr. Baxter: I cannot agree more. It is true that this must be balanced, and I would be the last to say that we should not have overseas investments. But I would suggest that this should be a little more selective than it has been in the past. It is not unreasonable to expect a Government agency to do some research and give some advice as to the desirability or otherwise of certain industries being established—

Mr. R. Gresham Cooke: rose—

Mr. Baxter: I had not finished with the previous interruption. It might not be at all unreasonable, but I agree that this is not what the Chancellor has said. One of the things which disturbed me about his speech was that investors have to look for the most profitable investment.

Sir A. V. Harvey: Is the hon. Member saying that the Government—Whitehall—should be the agency to advise which industries should go abroad? If that were the case, the country would be bankrupt in five years.

Mr. Baxter: That is a matter of opinion. When I wanted a development certificate for certain developments in my business, I had to go to the Board of Trade to justify it. Every firm which seeks to develop in Britain in the development areas has to go through this mill of going to the Board of Trade in London. Even we in Scotland have to come to London. I do not say that this is necessarily right or wrong, but if there are faults in the method we adopt for the exportation of money—whether they are in the Board of Trade or the Federation of British Industries—I think that they can be overcome.
Whether it will be very profitable should not be the only criterion of the development of a business abroad. Some financiers find it more profitable to develop abroad. Many industries in this country, including some in my constituency, have gone to the wall, and this has necessitated great financial help from the Government—a vicious circle—to try to establish new industries in those areas.

Sir Harmar Nicholls: The hon. Member is surely unfair when he uses the analogy of the industrial development certificate. That certificate recognises that it may be introducing inefficiency into a business, but the Government are prepared to do that to overcome a domestic social problem such as unemployment in an area. But to inject inefficiency when competing with other industries abroad would be the height of folly.

Mr. Baxter: I am astonished to hear any hon. Member suggest that the basis of the Local Employment Act is bringing inefficiency into business by directing certain industries to areas where it is necessary to provide work.
All these questions, domestic or international, must be related to a balance of what is in the best interests of the nation. I do not believe that the only criterion of foreign investment should be the profitability of the investment. It may be in the best interests of the nation in the long run that certain investments abroad, which do not show an immediate profitability, should be encouraged. It is not sufficient to make profitability the only criterion of foreign investment from the national point of view. From my own point of view as an investor, of course,


it is not unreasonable, because I want as much profit as I can get.
By and large we must take whatever steps are necessary to deal with the balance of payments. I believe that the Chancellor is trying, in the Finance Bill, to deal with the all-important question of the balance of payments.

Sir T. Brinton: One of the stated objects of the Corporation Tax is to encourage retention and to discourage the paying out of dividends. Some hon. Members have queried this principle, and I am inclined to agree that it is a false principle. When we are interfering with the overall conduct of business in this country by insisting on higher retention, we are diving into a very complicated subject.
The question how much a company ought to pay out is initially one for decision by the board of directors, and there are many instances in which a company ought to pay out very heavily. Let us take the example of a limited company which has the job of being management consultants. What need has the company for heavy retention? The capital of the company is in their heads. It is not primarily in fixed assets, expensive machinery or buildings. They do not require heavy retention. For the general economic good of the country and the benefit of the shareholder, such a company might reasonably be expected to pay out nearly the whole of its annual profit.
At the other end of the scale we have the type of enterprise which requires heavy fixed investment and possibly heavy working capital if it is to expand. By the nature of its business, it requires heavy retentions. This is particularly true in a developing industry in which the type of machinery is changing quickly and obsolesence is rapid. Retention would be advisable.
The Government have decided that it is a good thing to retain. In some instances this is so, but in others it is not. We cannot have a fixed rule about it, and a system of company taxation should not seek to encourage retention or to encourage pay out. It should hold the balance even, as the old system did.
In dealing with close companies the Government have made a nonsense of their own logic, if logic it is. They have

set a standard for close companies by which the pay-out should be 60 per cent. I must assume that they regard it as a reasonable standard. The Chancellor gave many reassurances that this proposal would not be administered with an iron hand, and we must see how it is administered, because the method of administration could well vary from time to time according to the temper of the Chancellor or of any of his successors. In the meantime, we have this standard. Apparently the retentions which are so good for non-close companies become very bad for close companies.
I am in favour of holding the balance evenly between retention and payout, and I do not favour providing tax incentives one way or the other, because of the difference in structure between various types of enterprise. But if there were a case for encouraging retention in one area of enterprise and discouraging it in another, surely the Chancellor's standard ought to be set exactly the opposite way round to that in which he has decided to set it. Surely the companies which require retention are the small companies which are unable to go to the market for increases in capital. Surely they need to retain more of their profits than do large companies.
This would be the logic of the situation if we were not bedevilled the whole time by the obsession of the Chancellor and his advisers with the idea that somebody may get away with some tax. Very much of the Bill has been cast by people in the frame of mind of saying, "Find out what George is doing and stop him doing it". This is the wrong attitude of mind for a responsible Minister to have when managing the finances of the country.

Sir Douglas Glover: Did my hon. Friend use the name "George" on purpose?

Sir T. Brinton: It is part of an old family joke which existed long before the unfortunate age in which that name achieved such prominence.
If we compel close companies to pay out 60 per cent. unless they can show good reasons why they should not do so, we shall handicap their operations considerably. We have a proposed system of taxation which states that money which is ploughed back into a company


will have borne tax of 40 per cent. whereas money paid out will have borne in total a tax of 64 per cent. which is a very heavy incentive to retain. But a close company is discouraged from doing so.
I intervened during the Chancellor's speech and my intervention was, I regret to say, excessively long, because I was trying to obtain enlightenment on a difficult point. I am not certain that the Chancellor or the Chief Secretary grasped the point which I was making. I am a director of a close company, a private family company, and we have had experience of the present method of administering Surtax. The situation now in relation to Surtax directions on private companies is that the Commissioners, if they consider that too little has been paid out, may say to the company, "You have paid out too little. We shall surcharge you". But they can surcharge only on the amount which they maintain that the company should have paid out—not on 100 per cent. of the profit. This rule was introduced when the Surtax umbrella was taken away by the Chancellor in 1962. Companies are no longer liable, as they used to be, to a surcharge on the whole of their profits.

Mr. Diamond: Mr. Diamond indicated dissent.

Sir T. Brinton: That is so. I have been the toad under the harrow.
The Chancellor suggested that he is giving some concession by limiting the liability to a direction, both for the purposes of Surtax and for the purposes of Income Tax, which will be chargeable to 60 per cent. of the profits. In practice he is giving no concession at all, since it is extremely unlikely that many companies would be asked by the Commissioners to pay out more than 60 per cent. of their profits.

7.30 p.m.

Mr. Diamond: It might help the hon. Member in his argument, which I followed on his earlier intervention, if I confirmed my rather discourteous shake of the head. The 100 per cent. still applies and has never been altered. The removal of the umbrella did not affect the Special Commissioners' powers, which were related to 100 per cent. and not to part of 100 per cent.

Sir T. Brinton: This is a very important point, and I must pursue it. In theory, if the Special Commissioners considered, and were prepared to state case, that 100 per cent. profits should have been paid out, they could surcharge on 100 per cent., but is that very likely or will it happen in many cases? Does the reduction to 60 per cent. mean that a one-man company could get away with retaining 40 per cent. profits in the company? I imagine that that is not the case. It is important.

Mr. Diamond: It is an important point. I hope that it will be convenient to the Committee if I deal with it at some little length when I wind up the debate.

Sir T. Brinton: I should like to know how it will work and how the rule will be administered. It appears that in future companies will have to establish their right, by stating their case, to retain more than 40 per cent. of their profits. This was not the case before now. Companies distributed what they thought was the right distribution and were subject possibly to the Commissioners' demanding that they should pay out more. But the onus was on the Commissioners to establish a case, in reason, for a higher pay-out. In future the company will have to establish a case for a lower pay-out. This is a handicap to the smaller private company and the close company.
The close companies will include many which thought themselves well beyond the reach of the tax inspector in making their investment decisions—because that is what it amounts to. The Revenue will have ever-increasing influence in the conduct of the company's financial affairs. I am certain that this is not welcome to my hon. Friends, and I do not think that it should be welcome to hon. Members opposite. This is an attempt to separate companies from their shareholders and to regard the shareholder as quite incidental to the existence of the company, as though the company itself had some physical existence apart from the people who compose it as members.
This is indicated by references, at several places in the Bill, to what are normally known as members of a company as "participators." I draw attention to this, because it underlies the philosophy


behind the Bill. In future the shareholders, the owners of the company, are not to be regarded as owners but merely as a not-very-desirable element in the conduct of the company's affairs. This is putting a wrench in the door which will finally open to the suggestion that companies belong either to those who manage them or to those who work in them, or preferably to the Government, and certainly not to the people who at present are the owners. I draw attention to that. It may appear a small point, but I believe that it illustrates the whole basis of thought behind the Bill.
Having already discussed Capital Gains Tax, we are now discussing Corporation Tax. Both taxes are designed to force the company and the shareholder apart and to force a different outlook on the part of companies. The Corporation Tax will hit the smaller and close companies. In this connection, I need only remind the Committee of a rather tactless intervention that was made at an earlier sitting by, I think, the Economic Secretary. When one of my hon. Friends said that the Corporation Tax would hit the family company, a Government Treasury spokesman commented, "A very good thing, too". That is what lies behind this legislation.

Mr. A. E. P. Duffy: I will not follow the main theme of the hon. Member for Kidderminster (Sir T. Brinton) because I do not believe that the real test of the Corporation Tax is its effect upon the small or close company. The real test is the effect it will have on the efficient company, and I am sure that many small firms and close companies are efficient and progressive.
I will deal with the possible impact of the Corporation Tax on the efficient and progressive company. While some of the points with which I will deal have been raised in the Committee, attention should be drawn to them again, particularly the suggestion of my hon. Friend the Member for Westhoughton (Mr. J. T. Price) that Amendment No. 270 is nothing more than a wrecking proposal.
When my hon. Friend made that remark it was indignantly denied by hon. Gentlemen opposite. However, when the right hon. Member for Orkney and Shetland (Mr. Grimond), in one of his typical speeches, in which, after

endeavouring to make some of my hon. Friends feel slightly awkward, he turned to the Opposition benches and asked whether the Conservatives would have introduced a Corporation Tax if the Amendment were accepted and if they had regained power I did not hear a single "Yes" from the benches opposite when the right hon. Gentleman asked that question. It is fair to say, therefore, that it is a wrecking Amendment.

Mr. Stratton Mills: Surely one can accept the principle of the Capital Gains Tax without having to put down an Amendment?

Mr. Duffy: I am not talking about the Capital Gains Tax.

Mr. Stratton Mills: The same thing applies.

Mr. Duffy: Not necessarily. I agree that one can support the principle of such a tax in that way and I could develop this point at some length. I hope that the hon. Gentleman will be good enough to listen to the case I am making.

Mr. Gower: Would not the hon. Gentleman agree, if he considers that the Government will be in office next year, that it would be no great hardship to them to defer the introduction of this type of tax so that longer consideration could be given to it? I trust that he also realises that when the right hon. Member for Orkney and Shetland (Mr. Grimond) asked whether a Conservative Government would introduce such a tax my hon. Friends obviously could not commit a future Government. The hon. Gentleman knows quite well that that is the position under the terms of our constitution.

7.45 p.m.

Mr. Duffy: I prefer to take the view propounded by the right hon. Member for Orkney that there is nothing definitive about this innovation; that there is nothing binding about it, except its introduction. Its effect could be altered by any future Government and I should have thought, in view of that, that there might have been a little more enthusiasm on the benches opposite for some form of Corporation Tax.
My right hon. Friend the Chancellor was right when he said that because the present tax system is neutral—as between


the company and the individual, savings and spending, domestic and overseas investment, and so on—there is an overwhelming need for a root and branch reform of the tax system. Some of the reforms are obvious, but we must consider this matter not only in the light of what is said in the Committee but in the light of what is being said outside about our discussions, about the intentions of the Government and the criticisms of those intentions, because I regret to say that much opinion outside is based on misrepresentation, for which some hon. Gentlemen opposite have been responsible.
We need reform to provide greater flexibility in our tax system for Chancellors of the Exchequer. We need reform to stimulate growth, because Britain has an inefficient asset productive structure. Among the developed countries we are responsible for one of the lowest percentages of investment. As most hon. Members recognise, there must be a correction of the bias in favour of overseas taxation. However sensitive some hon. Gentlemen opposite may be about overseas investment, they must accept this need. There is an obligation on the Chancellor—and the same could be said of a Conservative Chancellor had the Tories won the last election—to check the flow of capital overseas, especially in the face of our chronic balance of payments weakness.
My main concern is to raise a few points on the specific issue of growth. The possible effect of the Corporation Tax—and I concede that this is theory; I mention that so that hon. Gentlemen opposite may not find it necessary to intervene at this point—and, one hopes, the total effect of it will be to make investment by individuals less attractive and investment by companies more attractive. This obvious doubt arises. Are businessmen sufficiently rational economic creatures to realise what this is all about and what the author of the Clause—I use the word "author" since hon. Gentlemen seem to insist on its use—has in mind. In other words, will business know how to use the differential tax system to its best advantage? In cases where business men cannot use it to their best advantage, should we be concerned about their survival?
I asked this question in a slightly different context on Second Reading. It needs to be asked again. As well as considering whether business men who cannot use the Corporation Tax to their best advantage should gain our concern for their survival, so we must consider whether companies which retain profits are necessarily efficient and expansionist. Or will it, as the right hon. Member for Bexley (Mr. Heath) put it on Second Reading, make for the survival of the fattest? [HON. MEMBERS: "Hear, hear."] I understand the continued support for that doubt, but no research shows a correlation between the rate at which companies retain profits and the rate at which they grow. I should be interested to know from hon. Gentlemen opposite about any research which supports their view.
Neither is there any evidence of any correlation between distribution and growth. I should like to say that there was, because that is the argument I wish to support. Experience in this country since 1958—compared with experience before that date; and I take the year 1958 in view of the change that occurred in that year—as well as German experience suggests the tendency for companies to grow out of their own resources. One can reasonably argue that the balance of advantage lies at present with the Corporation Tax from the point of view of stimulation and growth.
To complete our disillusionment in the concept of all business men being economically rational men, we were told recently by the National Institute for Economic and Social Research, as well as by N.E.D.C., that when most directors of companies are deciding whether to invest, it is usual, except in the most sophisticated companies, for them to calculate returns on a pre-tax basis. In other words, they ignore taxation when making investment decisions.
The next question, therefore, is one which hon. Gentlemen opposite must ask themselves. Are these types of business men—those with real responsibility for the management of the economy and, therefore, for the standard of living and future of the country—to be defended by hon. Gentlemen opposite, especially at the expense of reform?

Mr. Gresham Cooke: The whole basis of the case against business men which


has been put forward for years by certain hon. Gentlemen opposite and others is that they spend too much time looking into tax matters; that they waste a great deal of time doing that. I cannot, therefore, understand why the hon. Gentleman is saying that they do not pay sufficient attention to tax matters.

Mr. Duffy: That may be so, but not necessarily for the right reasons. I believe that progressive business men are not afraid of the Corporation Tax and are able to cope with it.

Mr. John Biffen: Would the hon. Gentleman say what there is about the Corporation Tax proposals which will, as it were offer specific and selective encouragement to what he calls the efficient business section of the community?

Mr. Duffy: I was not basing my remarks on the business men in the efficient business section of the community. I will not be thrust into doing so. I was merely pointing out that efficient business men will see the possibilities which the Corporation Tax will open to them for investment.

Mr. Biffen: Would the hon. Gentleman recall that he prefaced his remarks by saying that he wished to concern himself not with the small or large companies but with efficient companies?

Mr. Duffy: I did, but I also want to see some of the smaller and close companies coming into this category. I want to see them efficient as well. I am concerned not only with efficient companies and efficient businessmen but with the help that the Corporation Tax can give to them to stimulate efficiency and create growth.
I put it to hon. Gentlemen opposite that some of them give the impression—I hope wrongly, because it is a damaging impression—that they are anxious to preserve the inefficient businessman. Similarly, some hon. Gentlemen opposite are saying that there is no case for selectivity in overseas investment. I regret that the right hon. Member for Hampstead (Mr. Brooke) is not in his place, because he seemed to think that this was such an easy matter that the concept bordered on complacency.
So far as I know, there is no machinery in the sterling area for selectivity; that exchange control does not begin to

operate except at the borders of the sterling area. I should have thought that there was an inescapable obligation on any Chancellor to do something about overseas investment, and that is the purpose of Clause 79. I will not say more about that. Enough has been said on it by my hon. Friends, some of whom speak with considerable authority.

Sir Harmar Nicholls: The hon. Gentleman says that his hon. Friend the Member for Birkenhead (Mr. Dell) spoke with authority, but his hon. Friend, who first raised the issue, spoke with authority about I.C.I. He said that as far as his knowledge went, and it was intimate, that company had passed that test, and the answer was favourable. He only thought from a superficial look that the result for the others would be unfavourable. In other words, the hon. Gentleman's authority passed the test; it was only his guesswork which failed.

Mr. Duffy: I believe that I said "with some authority", because I am sure that my hon. Friend would be the first to accept his limitations—and there are considerable limitations when one speaks of overseas investment.
Outrageous claims have been made today and previously about some aspects of investment. Those claims cannot be sustained. The best work done on the subject, and the best-known research into the possible effect of investment, suggests that none of us can speak with precision for or against overseas investment. That is as far as I want to go. In the circumstances, I think that my right hon. Friend's announcement last night of his intention to extend the transitional period will broaden the basis and widen the scope of operation. As the right hon. Member for Orkney and Shetland has pointed out, we are given a further period in which to think about these matters.
Looking at the strategy of the Corporation Tax, it must be remembered that this tax is not altogether out of line with some international practice. It is appropriate to the needs of our economy. Nevertheless, I trust that my right hon. Friend will look very carefully at any steps he may take in the near future that might blur the outline of this strategy.
It is not merely that it is important that the country should see what we are trying to do here, and that the trade


unions should see what we are attempting so that my right hon. Friend the First Secretary can get his package deal and his incomes policy moving, which is something of which none of us can be unmindful. It is also important that my right hon. Friend should bear in mind that any steps he takes that might smack of concession are likely to be misrepresented by the party opposite as weakness. Some newspapers have described last night's announcement as a retreat, but the same newspapers will demand that my right hon. Friend should go further in that direction; in other words, retreat still further.
Last night, we have had an example of the insistence with which the Opposition treat every such move or concession as a weakness, when the right hon. Member for Bexley immediately complained that the Committee would have less than 24 hours in which to consider my right hon. Friend's statement. We know, of course, that the announcement relates to Clause 79, which we shall not take before Whitsuntide. It is therefore possible that we shall have, not 24 hours', but three weeks' notice.
It is all of a piece with the carping criticism coming from the other side, and notably from the Opposition Front Bench. The right hon. Member for Altrincham and Sale (Mr. Barber) complained of the number of Amendments there have so far been. One would have thought, as the Leader of the Liberal Party said, that the Conservative benches would have welcomed the Amendments, and would have recognised our constitutional function to get or give Amendments where they are possible and desirable. One might think of it as being one way of showing our productivity.
The right hon. Gentleman complained that the Amendments were making for confusion, but some of the confusion—perhaps most of it—that may have come forth so far has arisen from the irresponsibility of right hon. and hon. Members opposite, some of which irresponsibility has more than bordered on the mischievous. I was strikingly reminded of that this afternoon when my right hon. Friend the Chancellor of the Exchequer, answering a query by the Leader of the Liberal Party, assured the

Committee of his belief in the significance of profit, and was immediately jeered at by the other side, notably by the hon. Member for Harwich (Mr. Ridsdale). I do not know of any hon. Member on this side who does not share my right hon. Friend's view, and I should have thought that for national reasons hon. Members opposite would have been glad of such an assurance. Instead of that, my right hon. Friend is misrepresented.
Finally, we are asked now to discuss this insincere Amendment No. 270 in which my hon. Friend the Member for Westhoughton has shown—and the right hon. Member for Orkney and Shetland confirmed it—the Opposition do not really believe. They are not interested in the Corporation Tax, which means that they are not interested in reform.

Mr. John Harvey: The hon. Member for Colne Valley (Mr. Duffy) spoke of the lack of interest on this side of the Committee, but he should have looked at his own benches—

Mr. Duffy: rose—

Hon. Members: Sit down.

Mr. Harvey: I hope that the hon. Member will not mind my not giving way, but there are a large number of hon. Members who wish to join in the debate, and I hope to be able to satisfy him that we are by no means disinterested.
In the prelude to the General Election campaign, the Labour Party, in its manifesto, said:
Labour is ready. Poised to swing its plans into instant operation. Impatient to apply the New Thinking that will end the chaos and sterility.
The whole of our complaint about Corporation Tax, and about so many other aspects of the Budget, is that it is not new thinking, but no thinking.
We are faced with a situation in which the Chancellor is having to bring in a number of Amendments as the debate proceeds. Whether or not the hon. Gentleman refers to them as concessions is irrelevant, because the thinking is being done—to the extent that it is being done at all—as we go along from day to day. That is the reason for this Amendment, suggesting that the whole exercise should be put back for at least


12 months, so that the thinking the nation was led to believe had been done, may in fact be done, before we plunge into any innovation.
My concern is primarily with the effect of the tax on overseas investment and on overseas trade. This afternoon, the Chancellor of the Exchequer said that not all overseas investment is desirable. That may well be true, but who is to decide what is and what is not desirable? A great deal of overseas investment is necessary, let alone desirable, to our own future interest—investment in raw materials that are vital to our industry; investment in oil—that is certainly vital to our future.
Whatever arguments we may occasionally have in this Chamber about the importance of coal to our island economy, nothing alters the fact that oil is of increasing importance, and that for any party claiming to be a party of the future the importance of oil must be undisputed. Therefore, the securing of adequate reserves of oil all over the world for our own interests and the interests of British companies involved in international trade is absolutely vital.
8.0 p.m.
Our complaint of necessity, therefore, is that the Chancellor, in being worried about the degree of current overseas investment, is using the same blunt instrument on all types of investment, whether they exist already or whether they might be the investments of tomorrow. He is using the same blunt instrument on the desirable and the necessary as on what he may conceive to be the undesirable. But what may seem undesirable to us at any given moment may be very desirable to another country.
The Federation of British Industries, in a recent report, said:
The F.B.I. inquiry confirms the all-important economic facts that economic growth is a process of increasing interdependence with other economies; that a country's prosperity depends on the prosperity of other countries, and that its own self-interest, let alone is international obligations, must now preclude national solutions of economic problems which do not take full account of their effect on other countries.
It may well be that some of those investments which today seem less desirable because there will be no great immediate return on them are, nevertheless,

socially the most desirable investments that we could be making. That is especially true of investments in developing countries. One hon. Member opposite argued that investments in developing countries have been going down in recent years. But the question that is also relevant is the total stake that Britain has in the investment field in so many of these countries, and it is colossal.
We must remember, therefore, that we are looking to a future in which the expansion of wealth in these countries will be fundamental to the expansion of our own wealth here. An American said two or three years ago, "Anyone who invests in India today is a sucker and anyone who does not invest in India today is a sucker", and both propositions can be argued with equal validity.
The Chancellor spoke of Corporation Tax applying in many countries of the Commonwealth, such as India and Australia. But he did not tell us how Corporation Tax is combined with private taxation in those countries. We are concerned at the hurried introduction of Corporation Tax by the Government who are seeking to give the impression that they have done their thinking and that they really have plans to put before the nation which are novel, but which have not been thought out, which cannot do what are claimed for them and which may do great damage.
In substantiation of that let me quote from the Economist:
There is, in fact, a grave suspicion that the corporation tax proposal is based on nothing more than the conjuncture of a desire to introduce a differential profits tax, the purely conceptual arguments of Mr. Kaldor's minority report of the Royal Commission on Taxation, and an overwhelming desire to demonstrate the government's willingness for change. There is the danger therefore that Britain's most valuable scarce resource—its capacity for change—has been recklessly squandered.
It is because many of us on this side of the Committee, and I suspect quite a few on the other side as well, believe that the Government have not thought out the implications of this tax, are altogether in too much of a hurry to apply it, have not thought out the damage that it could do to the economy, and that there are no landmarks by which to be guided in formulating this tax that this Amendment is the right Amendment and the exercise should be put off for at least 12 months.

Mr. Bruce-Gardyne: The tax which we are discussing has been attributed to various parental hands. One of my hon. Friends suggested that we had only to look to Mr. Kaldor. Of course, there is no doubt about the authorship of this tax. But we have to ask ourselves why, in view of the occurrences to other Governments whom this gentleman has advised in the past, the Government should have shown such a masochistic tendency as to accept his advice on this occasion.
I suspect that the reason is the one suggested by the hon. Member for Colne Valley (Mr. Duffy), that the attraction of this tax was that, together with the Capital Gains Tax, it would constitute a double-barrelled attack on the investing public and on the shareholder and thereby make it easier to satisfy the rather old-fashioned views of the T.U.C. and obtain their agreement to an incomes policy.

Mr. Duffy: I am sure that the hon. Gentleman would not want to misrepresent me. I did not mention the Capital Gains Tax. I was thinking specifically of the Corporation Tax and I was thinking then, as I am now, that the Corporation Tax could play a positive rôle. I would not want it to play other than a positive rôle in policy making.

Mr. Bruce-Gardyne: I know that the hon. Gentleman thinks that the Corporation Tax has a positive rôle to play. This is where we disagree. I agree with the hon. Gentleman that it was part of the Government's device for obtaining consent to an incomes policy which has already virtually disappeared without any trace, and this tax is all we are left with.
I felt that the initial reactions of many leading businessmen, from the F.B.I. and elsewhere, to this Budget were astonishingly ignorant and naïve. However, they have soon learned its real implications. As my hon. Friend the Member for Kidderminster (Sir T. Brinton) has pointed out, this tax is designed to divorce the company from its shareholders, to insulate the board room decisions on investment from the judgment of the Stock Market, and to discourage the public firm from raising the money that it needs from the market where its investment record and judgment can be fairly and properly tested.
The position in the case of the small companies, with which my hon. Friend the Member for Kidderminster was particularly concerned, is precisely the opposite. We have had today an assurance from the Chancellor that he does not really mean to hurt and that, in fact, in some extraordinary way this 60 per cent. requirement for distributions is a concession for the close company. I think that we had the final answer to this from the hon. Member for Manchester, Cheetham (Mr. Harold Lever). As I understood it, his argument was that he felt that he should vote for the Government tonight because he was satisfied that they had not the faintest idea what they were doing. This is absolutely correct.
The Chief Secretary said on Second Reading that he would like to emphasise that a small growing firm has virtually no other means of increasing its equity capital except from retentions. It is particularly the young growing firm that needs this help, and therefore I suppose it has now to distribute 60 per cent. of its retentions. The Chief Secretary appears to be shaking his head. We have been told that there will be a certain amount of rethinking about this, and high time, too, but, unfortunately, meanwhile, the whole of industry and the City are plunged into uncertainty because we do not know how the various Clauses affecting close companies will be adjusted as these discussions proceed.
The sort of results that we can expect are already all around us. I noticed the other day that a substantial public company, Wiggins Teape, decided that it had to postpone its annual general meeting because it did not know where it stood in its tax position as a result of the confusion created round the Corporation Tax.

Mr. Diamond: Does the hon. Gentleman suggest that confusion should continue for another year in accordance with the Amendment which he is supporting?

Mr. Bruce-Gardyne: No, I suggest that we postpone the application of the tax for a further year so that hon. and right hon. Members opposite can get their ideas sorted out and not come here with ideas which, clearly, they have not had time to think about properly.
Earnings Investment Trust put out a statement the other day explaining that not only had it to postpone its annual meeting, but it could not even declare an interim dividend because it was in the position that unless it distributed 90 per cent. of income it was liable not to qualify as an investment trust whereas if it did distribute it, because of the increase in the distribution, it would be caught for Corporation Tax a year earlier. In other words, it is a case of, "You double your money and you takes your choice".
There is another aspect of this matter which is particularly worrying. We have all drawn attention to the appalling complications of the Bill. The large company can employ accountants and others on its staff to advise it through the intricacies of the Bill, but the small company faces great difficulties in dealing with these complications. I was talking the other day to a constituent who runs a small private company. I said to him, "I suppose that you qualify as a close company within the terms of the Budget". He said, "Yes, I think we do, but I have discussed it all with my accountants. We have been used to the dangers of changes in the Surtax. It makes no difference to us." I said, "Of course it does. Whereas, before, the onus of proof rested with the Inland Revenue inspector it now rests with you."
It may be that hon. and right hon. Members opposite cannot understand the Budget themselves, but it is true that many small companies, playing a vital rôle in producing the dynamic society of which we have heard so much from the Government, simply do not know how they will be affected by this tax. They do not know that they are liable to find, come next year, that they will be required to pay Income Tax and Surtax on dividends which their shareholders receive. They cannot follow the complications of the Bill, to which the many Amendments put down by the Chancellor have only added.
My conclusion is simply that I support the Amendment, above all—and I make no bones about it—because I believe that if we delay the application of the Corporation Tax for a year by that time we shall have a different Government

and we shall be able to put the thing on a different and a sensible basis.

8.15 p.m.

Sir Cyril Black: The Chancellor of the Exchequer, in his speech earlier today, attempted to defend the proposals for the Corporation Tax by two main arguments. He said that there was a large body of opinion in the country which was in favour of the reform of the tax structure and he was undertaking that reform, and that there was still a good deal of tax avoidance of the kind which he regarded as undesirable and reprehensible and that in his opinion his proposals will do something, at any rate, to deal with that. But it seems to me that the Chancellor has to discharge a considerably larger burden of proof than that.
The Chancellor must show that the evils which will arise from his proposals, if carried into effect, will be less than the evils which he is seeking to cure. It is because most of us believe that the evils which his proposals will create will far exceed the evils which he is trying to cure that we think that, at the least, the implementation of these proposals should be delayed for a year in order that more and better thinking may be done about them.
We have had a long and interesting debate and I do not intend to delay the Committee for long, but I want to mention six obvious evils which arise as a result of these Corporation Tax proposals. The first is that there is a real danger that if the proposals are implemented tens of thousands of small companies will be put out of business. At the very least the difficulty of small companies in competing with large companies will be gravely aggravated as a result of these proposals.
I know that the Chancellor argues that Corporation Tax is levied upon companies and that Income Tax on the profits which are distributed as dividends is levied upon the shareholders and that it is wrong to relate the one to the other. This impresses me as an extremely naïve and completely unrealistic view of the matter. The fact is that under these proposals the smaller the company and the smaller its profits the larger will be the percentage increase in the taxation


of those profits in the form of Corporation Tax and Income Tax.
If we assume a distribution of all the profits—which I agree is an unusual state of affairs—by way of dividend in the case of a company with a £2,000 a year profit, under these proposals the increase in Corporation Tax and Income Tax, compared with Profits Tax and Income Tax under the old system, means a total increase in taxation of 67 per cent., whereas when we get to a company with a profit of £50,000 a year the percentage increase in its tax bill is only 20 per cent.
If we assume the more normal case of a distribution of 60 per cent. of the profit—which is apparently what the Chancellor looks upon as normal and desirable—the increased tax burden on the £2,000 a year profit company goes up by 41 per cent., and in the case of the £50,000 a year profit company by only 2 per cent. Therefore, whilst small companies at present may be finding it more and more difficult to compete with their large and powerful competitors, this in many cases will be the final deathblow to them.
They will not be able to maintain their position in a strictly competitive world with this enormously increased tax burden compared with the tax burden falling on their larger competitors. It is an astonishing application of Socialist doctrine that the smaller the company and the smaller the profit the larger is the percentage increase in the tax burden, and, conversely, the larger the company and the larger the profit, the smaller is the percentage increase in the tax burden. This is a great condemnation of the Chancellor's proposals.
Obviously, if these proposals are implemented, small companies will be wound up and other small companies which, under the existing tax arrangements, would be incorporated and brought into being will not be formed, and the owners of smaller businesses will prefer to trade as partnerships because, in nearly every case, the tax burden on them will by that means be much less.
There are at least two powerful objections to that retrograde development which must inevitably take place under these proposals. First, in a modern democratic and industrial State

such as ours, nothing has contributed more, perhaps, to the improvement in the standard of living of the people and the prosperity of the nation than the development of the limited liability company. Anything likely to put the clock back in that respect and give advantage to the partnership over the limited liability company is essentially a retrograde and reactionary development.
In the second place, companies are subject to all the safeguarding provisions of our company law. They have to conduct their business according to strict rules laid down under the Companies Act which they neglect at their peril. Very few, if any, of these safeguards apply to partnerships. But, under these proposals, we are likely to have more partnerships and fewer companies, fewer safeguards for the business community and more people whose operations will be removed from the scope of our companies legislation. For these reasons, I believe that the effect of the Chancellor's proposal will be wholly bad.
The rules regarding close companies are, in many cases, literally ludicrous in the results which they produce. Inevitably, many companies will be forced into liquidation because the outgoings they will have to bear in future, including the Corporation Tax, will exceed total income. I give one simple illustration to put the point beyond misunderstanding. This is not a fantastic case. It is a quite normal example, and there are thousands of similar cases throughout the country. A small close company has a share capital of £5,000. It owns a property worth £25,000 which brings in a net income of £2,000 a year. The company has a mortgage of £20,000 on the property, not from a bank—the Committee will note that the mortgage is more than 50 per cent. of the value of the assets—so that the interest on the mortgage does not rank as a charge for computing the Corporation Tax liability.
The Company has £2,000 coming in. It has to pay mortgage interest of £1,400 a year, assuming a 7 per cent. rate of interest. It has a Corporation Tax liability of £800, if we assume a 40 per cent. rate calculated on £2,000 a year net income. Thus, the inescapable outgoings for mortgage interest and Corporation Tax are £2,200 a year, yet total income


is £2,000. The shareholders are effectively deprived for all time, or so long as the company continues, from deriving any return on their equity investments, and, unless they are willing to put their hands in their pockets and provide £200 a year to make up the shortage, the company will be forced into liquidation either by the operations of the mortgagee or by the operations of the tax collector. Could anything be more ludicrous than a proposal which produces such a result?
As I understand it, the proposed Corporation Tax is intended to supplant the Profits Tax of 15 per cent. which is to be discontinued. But there is nothing in the Bill that I can find which would enable back losses for Profits Tax purposes to be set against future liabilities for Corporation Tax. What is the Government's intention here? Do they intend that the back losses for Profits Tax purposes shall not be capable of set-off against future liabilities for Corporation Tax? We ought to have a clear answer.
These Corporation Tax proposals make the raising of capital by loan much more attractive than the raising of capital by the issue of shares. Except in the case of close companies in which respect there are certain limitations, interest on loan capital is set off as a charge on profits and the Corporation Tax is levied only upon the resulting net figure, whereas, of course, if the further capital is raised by the issue of shares there is no avoidance of the Corporation Tax by the dividends on the shares.
It is a bad development that people should be constrained for fiscal reasons to finance their businesses on the largest possible scale by borrowings instead of by fixed capital. If the country ever, unhappily, runs into a depression or a conditon of slump, we may find ourselves in the same position as the United States in the slump of the early 1930s when large numbers of businesses foundered merely because they were capitalised on the basis of excessive prior charges and no adequate equity capital.
These Corporation Tax proposals will discourage enterprise, and they will do this in several ways. I ask the Committee to bear with me when I quote from my own experience as a businessman. We learn a good deal from our own contacts with the business world, and I see no reason why I should not draw upon my

experience to illustrate the point. I am chairman of two groups of companies which are engaged in property development. They buy sites. They put up buildings. They let the buildings. They do not sell the buildings. They mortgage the buildings when they are up and they keep them as a permanent investment.
I shall be quite frank with the Committee about my position. Under these proposals, it will be much more profitable for me not to carry out further developments and not to carry on the normal business of my companies. The general view of property developers, with which I do not disagree, is that, if one puts up a new building, with all the risk, the trouble and the delay involved in such an operation, one can expect a yield of between 8 and 10 per cent. on the capital outlay. If it does not turn out too well, one hopes to get 8 per cent. If it turns out to be more than average successful development, one perhaps gets 10 per cent.
8.30 p.m.
The fact is, however, that if I invest my funds in buying the well-secured preference shares in other people's companies, which I can buy to give a yield, at present market prices, of over 6½ per cent. a year, which is franked income because it has borne the Corporation Tax in the company that pays out the preference dividend which I would receive, that 6½ per cent. of franked income in the hands of my companies is equivalent to at least an 11 per cent. yield on any properties that I build.
Inasmuch as I cannot rely on being able to put up buildings on which I can depend upon getting a yield of 11 per cent., I can depend upon getting my income on well-secured preference shares where the dividend may be 50 or even 100 times covered. If I look at the interests of my shareholders in this matter, I will not, if this Corporation Tax is imposed, embark upon any further operations which have been the normal activities of the company if by doing nothing, by taking no risk, by sitting back and leaving the sites undeveloped I can get a better return for my shareholders than by carrying on the normal business of the company.
If these proposals have, as I have satisfied myself they will have, these


consequences, what a wise thing it will be for us to save the Chancellor of the Exchequer from the position in which shortly he will find himself if this tax is imposed in the form in which it is expressed in the Bill. Let us save him, if we can, from his own folly and give him time to think, because, obviously, he has not thought enough yet.

Mr. Barnett: Hon. Members will know that I have not always agreed with the Government in the different aspects of the Finance Bill, and there are many Clauses on which I hope to be able to speak yet. It is, however, true, and the Government should recognise it, that businessmen are unhappy. They are confused, but it would be rather surprising were they not confused, especially when one sees, reads and hears some of the utterly irresponsible stuff that is written and spoken by hon. Members opposite, by professional people who should know better, and by the Press, who certainly seem to be going about their job in a way which is hardly conducive to helping the nation and businessmen generally to understand the position. Much of the comment is both ill-informed and very often is deliberate misrepresentation.
I should like to give hon. Members some examples of a professional organisation making comments which are certainly not of a technical nature. I feel strongly about this one, because it happens to be my own association. In a memorandum, my association has said much with which I could agree. I say advisedly, however, that it has made unprofessional, exaggerated comments, because in its preamble it says that the Bill
represents a vicious attack … the most unfortunate piece of fiscal legislation".

Hon. Members: Hear, hear.

Mr. Barnett: I thought that hon. Members opposite would say "Hear, hear" to that, but let me finish. My association uses words like "irrational prejudice".
A similar association, the chartered institute, says similar things as regards the technical aspects of the Bill but does not find it necessary to make that sort of comment. I wonder whether this has not

something to do with the fact that on the Front Bench opposite sits a member of the executive council of my association. I am very sorry to say this.

Hon. Members: Withdraw.

The Temporary Chairman (Mr. Thomas Steele): Order. I hope that the hon. Member will now relate his remarks to the Amendment and the Corporation Tax.

Mr. Barnett: I appreciate that right hon. and hon. Members opposite will not like what I am about to say, but—

The Temporary Chairman: I am not concerned with whether right hon. and hon. Members like it. All I am concerned about is that it should be related to the matter under discussion.

Mr. Barnett: I will endeavour to do that, Mr. Steele, but this has been a wide-ranging debate and we are discussing whether we should extend the beginning of Corporation Tax for one year. In deciding whether we should do that, we are entitled to ask—

The Temporary Chairman: Order. I quite agree that that is what we are discussing, but the hon. Member was rather discussing the Bill.

Mr. Barnett: With respect, Mr. Steele, we have been discussing investment abroad, Clause 43 in respect of retentions, and all sorts of things. I am restricting myself to whether it would be helpful to delay the commencement of the tax for 12 months. I am attempting to prove that some of the comments that are being made, both in the Committee, in the House and elsewhere, certainly are not conducive or in any way helpful to persuading hon. Members to delay the effect of the Bill for a further 12 months. I was about to say—

The Temporary Chairman: This is where the confusion arises. The hon. Member keeps talking about the effect of the Bill. We are dealing with the Corporation Tax.

Mr. Barnett: Thank you, Mr. Steele. The Corporation Tax aspect of the Bill is what I am dealing with. I am endeavouring to show that some of the comments which have been made on the tax by professional people who should know better have been unworthy of them.
With much of what my association and others hive said, I agree. I can agree sincerely with some of the things that the hon. Member for Wimbledon (Sir C. Black) said—for example, on the question of loan interest. I agree that this sort of thing should not have been included in the Bill. I am confident that when we deal with the Amendments, my right hon. Friend the Chancellor of the Exchequer will make the appropriate concessions. But to make the sort of terms that have been used is unworthy of a professional organisation. I feel very sad about it, because the chartered institute, dealing, for example, with Clause 69 as it affects the Corporation Tax, comments that it
regrets that it has been decided to retain the limitations as presently imposed for profits tax on the remuneration, loan interest, etc. …
I agree with my own association's comments, but why was it necessary to make this sort of attack by a professional organisation which was supposed to be dealing purely and simply with technical matters?

Mr. Norman St. John-Stevas: Would it not be more appropriate if the hon. Member addressed his strictures to the publishers of the document which he has in his hand rather than inflict them upon us?

Mr. Barnett: The hon. Member can put his strictures where he likes. I intend to put mine where I like. I feel very strongly indeed about it. I am glad that I have said it, and I do not retract one single word of it.

Mr. Geoffrey Hirst: rose—

Mr. Barnett: If hon. Members opposite wish to intervene I shall be glad to give way.

Mr. Hirst: We are not concerned with your association in the slightest bit.

The Temporary Chairman: Order.

Mr. Barnett: Thank you, Mr. Steele, I appreciate that you are not a member of my association.
The hon. Member for Shipley (Mr. Hirst) may not be concerned with my association, but I should have thought that all hon. Members and the country would be disturbed when a professional body made attacks other than attacks of a technical nature. As I say, I do not retract one word of what I have said.
The Press has been particularly ill-informed in its comments. It seems to be hell-bent on stirring it up. I include the correspondence columns of the "heavy papers", as they are described. The Financial Times, The Times and The Guardian have published correspondence which, frankly, I should have thought the editors would have been well advised to leave out [HON. MEMBERS: "Oh."] Hon. Members opposite should appreciate that what I am saying is that some of the letters published have shown such abysmal ignorance that they could have been written by them.

Mr. Gower: Surely the hon. Gentleman is not suggesting that this Committee should act as a sort of censor of his own association and of the Press? Is he making such an absurd suggestion?

Mr. Barnett: The hon. Gentleman should listen. I was not suggesting anything of the sort. We are discussing an Amendment which, if passed, would carry forward for one year the commencement of the operation of the Corporation Tax. I am saying that if we were to do that and allow to continue some of the comments which have been made it would not help to improve the rather confused situation which exists. [HON. MEMBERS: "What about the Amendment?"] Hon. Members opposite are shouting from a reclining position, "What about the Amendment?" The debate has ranged very widely, but I intend to stick particularly to the question whether we should extend the commencing date of the Corporation Tax by one year.
Some of the reasons which the right hon. Member for Altrincham and Sale (Mr. Barber) gave for postponing the implementation of the Corporation Tax were almost exactly the sort of points which have been raised throughout the debate. For example, points have been made about the loan interest aspect of close companies and the amount of remuneration, which I agree is too low. I would certainly want to see it higher. Points have been raised about the effect of the Clause dealing, for example, with the onus provisions as affected by Sections 245 and 247 of the Income Tax Act, 1952. These are things which, I hope, we will be able to amend.
But if we are to get these concessions—and I hope that right hon. and hon. Members opposite really want them—and if we are to have a situation in the country and among businessmen which I should have thought all hon. Members would want, it does not help to make ill-informed comment and completely to misrepresent the whole purpose of this part of the Bill.
It is said that this is a very complex Bill and that the Clauses affecting Corporation Tax are so very confusing and that the matter should have been left over or dealt with in another way. It is suggested that we should have another year to consider it. The Income Tax Act, 1952, has 510 pages. We have had 13 years—I do not use that phrase in any political sense—in which to absorb and understand this Act. I willingly confess that I do not know every word of it. I suggest that, perhaps, even the right hon. Member for Bexley (Mr. Heath) does not know a word or two of it. For example, Sections 127 to 130 are extremely complex Sections relating to the commencement provisions which will no longer apply under the Corporation Tax.
8.45 p.m.
One would think, to listen to some of the words which have been poured forth in this Committee and elsewhere, that we have had the simplest possible tax system. Anybody who had anything to do with Income Tax before this knows that we have had, and still have, a very complex system. Anybody who has listened to me in the debates we have had here will know that I want to see a very much simpler one. I think that this is a very modest start; I hope that we shall do much better yet; but to suggest that what we have now is something very complex, and that what we had before was something very simple, is utterly to misrepresent the case.
I have, as I say, my own disagreements about some of the effects of the Corporation Tax, and I have every hope, as I say, that these will be amended in due course, but if hon. and right hon. Members opposite are to go on misrepresenting the case as they are doing and confusing themselves and others, one year's delay would be positively harmful.

Mr. St. John-Stevas: The hon. Member for Westhoughton (Mr. J. T. Price) some time ago and the hon. Member for Colne Valley (Mr. Duffy) more recently referred to this Amendment as a wrecking Amendment. It is, of course, nothing of the kind. It is a saving Amendment, because it will give the Government some time to think out the implications of this tax, implications which, this debate has made abundantly clear, had not been thought out before the Bill was introduced. It is quite clear that there has been insufficient thought behind this Clause; there has been inadequate preparation; and above all, there has been no sustained effort to obtain evidence of the need for this tax or to work out what its effects are likely to be.
The Chancellor referred earlier to the transitional difficulties which the Clause had raised, but what has become clear in the course of this debate is that there are fundamental difficulties which have never been adequately considered on the Treasury Bench. We do not know whose fault this is; whether it is the fault of the inadequate research services at Transport House, or because under our constitution the party in opposition has to make do with very inadequate research facilities indeed. The point of this Amendment, however, is to allow that research to take place now: better late than never.
Another reason for the moving of this Amendment is the quite extraordinary moment which the Government have chosen to introduce this new tax. No one thinks that the tax system is perfect, but this is surely a very curious time to introduce a radical revolution of this kind when we are facing a grave financial crisis, a deficit overseas, and a crisis of confidence induced by the actions of the present Government. Furthermore, it is being introduced at a period when above all we need a tax system to encourage competition and efficiency—and those are the two things which this new Clause does nothing to bring about.
We have heard some weighty arguments against this tax, but one has heard very little in the way of argument for it. We have heard a lot of declarations of faith from Government spokesmen; we have heard hardly any reasoned argument for the change.
I want to deal first with the effect of the Corporation Tax on overseas investment. The Chancellor said that a favourable balance of payments must be a first priority. We all agree with this. What he failed to demonstrate was how this tax will in any way help to improve our balance of payments problem. He said that we must make foreign investments more selective and that was the whole case for this tax as regards overseas investments. Not one piece of evidence has been produced to show how this tax is going to work selectively. In fact the major criticism of the tax, from the overseas investment point of view, is that it is totally indiscriminate. It will deter overseas investment of all kinds. The objection that can be raised to this tax is precisely this, that it is a blanket tax applying to all companies irrespective of the circumstances in which they may be operating.
To take one example, although many could be quoted, the situation of British Petroleum and the situation of Shell are totally different. This tax will affect them in very different ways to the detriment in particular of the British Petroleum Company. The effect will be to discourage overseas investment indiscriminately and it is an extraordinary situation that a Government which came in pledged to increase investment, particularly in the under-developed countries, and which has for so long affected an attitude of moral superiority on this point, should be dealing investment overseas such a serious blow.
In a number of respects this Corporation Tax will positively worsen our balance of payments situation. Much of investment overseas goes into the actual promotion of exports. We do not have exact figures for it. One example of this was touched on in an intervention by my hon. Friend the Member for Kidderminster (Sir T. Brinton) when he pointed out that in the carpet industry there was a large export trade with Australia and that when domestic production grew up after a time, in order to maintain that market it was necessary to manufacture on the spot. That is precisely the sort of remedial treatment, when sales are going down because of domestic competition in an overseas market, that is made much more difficult by this Clause.
There is also the extremely important position of the E.E.C. As long as we are excluded from the E.E.C., and certainly we shall be excluded as long as the present Government are in power, it becomes vital for us to beat the tariff barriers which are raised against us, by investing within the community itself. This Clause will be a major obstacle to that kind of investment. There is another point that will again be harmful to our balance of payments, arising directly from this Clause. Companies trading overseas are now faced with a threat of penal taxation of anything between the rate of 41 per cent. and 65 per cent. on profits which they transmit to this country. While this uncertainty lasts they will not transmit those profits and if, as seems likely, this rate of taxation is penally high, they will not transmit them at all.
Those are some reasons for opposing this Clause, because it will have a harmful effect on our overseas investment. All these arguments are equally applicable to the situation today or that in seven or 10 years' time. The absurdity of the attitude of the hon. Gentlemen opposite is that they expect us to treat a temporary concession as though it were a major revolution in their attitude. The hon. Member for Meriden (Mr. Rowland) said that we should be deeply grateful for these changes. All that we and British industry have got is a suspended sentence. Why should be be particularly grateful for that? The guillotine is on the way down. It has been temporarily suspended, but the head of industry is still on the block.
If we turn to the home scene, we see that the impact of this proposed Corporation Tax will be equally disastrous. First, it will impose, or is likely to impose, extra burden of taxation on industry. It will make it extremely difficult for the great companies, which are the mainstay of our industrial effort, to maintain their dividends. That is not something to rejoice over, as some hon. Gentlemen opposite seem to imply. It is quite deplorable.
The Chancellor spoke about a high distribution of profits as though that was something immoral, and it was matched by sentiments expressed by hon. Gentlemen opposite that high profits in themselves are immoral. But both these things


are perfectly justifiable within the context of our economy. High profits are an indication of efficiency, and a high distribution of profits can be extremely useful in attracting capital, especially risk capital, into new industries.
The Chancellor said that some companies would undoubtedly benefit from Corporation Tax as it is laid down in this Clause. He did not specify which companies would benefit. One thing that is certain is that not only the old-established companies will suffer. The ones which will suffer much more are the new enterprising companies which are trying to break into new fields of endeavour. The effect of the Corporation Tax will be to freeze British industry into a much more rigid pattern than was imposed under the old system.
The third count of the indictment against the Corporation Tax is that it is entirely irrelevant to our economic needs. It does nothing for investment. On the contrary, it reduces the investment allowances. If the Corporation Tax runs at the minimum rate of 35 per cent., investment allowances will go down by more than one-third. It will reduce the money available for investment, because if the great established companies are to keep faith with their shareholders and maintain their dividends—and this is certainly what they should do, because it is on the basis of their dividends in the past that thousands, and perhaps millions, of investors put their savings into these companies—they will have to do so at the expense of the money available for investment in the company itself.
The Corporation Tax does nothing to increase efficiency. It may, in fact, discourage rapidly growing companies from distributing their profits. I suppose that some argument can be made for that, but at the same time this tax will provide a shield behind which inefficient companies will be able to shelter, because competition in dividend distribution, which is one of the essential checks of the market, and one of the things which divides the inefficient company from the efficient one, and exposes efficiency and inefficiency to investors, will be seriously interfered with.
No case has been made on its merits, nor has it been attempted to make one

on its merits, for this tax. It can be justified only on the ground of change for change's sake, which is a sillier doctrine even than that attributed to the Bourbons.
We have had echoes during the debate of the absurd theory that there are somehow two completely distinct entities, the company on the one hand and the shareholders on the other; that these entities are totally separate; that they are creatures inhabiting different planets and that there is no identity of interest between them. This is to mistake speculation for investment and to confuse speculators with shareholders. Of course there is an identity of interest between a company and its shareholders. Both have an equal interest in seeing that company prosper and grow. It is the fundamental objection to, just as it is the fundamental justification put forward for, this tax, that it ignores that basic community of interest, which is a fact of industrial and commercial life.
That is not the least of the reasons for opposing this tax. If we can get rid of it altogether, all the better. If we cannot do that, the best we can do is to postpone it so that the damage which it will undoubtedly do will be deferred until the last possible moment.

9.0 p.m.

Mr. Biffen: The Corporation Tax has been widely discussed and I do not wish to prolong the discussion unduly. Therefore, I hope that I will compensate in brevity for what may be the lack of novelty in what I have to say.
There are two points upon which I should like to touch. One is the argument that the position of overseas investment has necessitated the introduction of the Corporation Tax. I regard this argument with a great deal of suspicion, not least because, when the Chancellor first announced the Corporation Tax, last November, he made no reference whatsoever to the fact that it would be of some assistance to our overseas situation.
It seems to me extremely curious that a Government who are supposedly pledged to planning and selectivity should have chosen this weapon as inducing a greater degree of selectivity in our overseas investment. In some senses I welcome the fact that they think, on this occasion, that a Whitehall decision is


best replaced by a generalised industrial decision cast throughout the economy, but I doubt whether this argument does much to sustain support from their own benches. Remarks made by the hon. Member for West Stirlingshire (Mr. W. Baxter) suggested that he, for one, was not convinced that the case for selectivity had been particularly well argued by his own Front Bench.
The point about Corporation Tax which I am sure is fundamental to this particular sort of tax is that it is designed to increase retention and discourage distribution. It is quite nonsensical to argue—as has been argued by a number of hon. Members opposite—that the Conservative Party is putting itself in the position of being the root and branch opponent of any sort of Corporation Tax. It is at least arguable, to say no more, that there is more similarity between the tax system which we are abandoning and the German form of corporation tax than between the German form of corporation tax—the Neumark, European, E.E.C. type of corporation tax—and the Corporation Tax which the Government propose to introduce.
It is the whole logic of increased retention which, I think, should be challenged now. I should like to give one quotation which discusses the whole question of the growing divorce between shareholders and managers:
Nevertheless, the virtual absence of shareholder control does mean that the boards of large firms are almost wholly autonomous. They exercise enormous power without being responsible to anybody.
That is a quotation from "Industry and Society", published by the Labour Party in 1957. We should think long and hard before we take any steps which will increase the enormous power which is being exercised without responsibility to anybody.
The philosophy behind this kind of Corporation Tax is a design to widen the gulf between modern and contemporary industrial management and the shareholders. It is designed so that shareholders shall ultimately wither on the vine. If that is the philosophy of hon. Members opposite—and there is plenty of evidence to show that it is their philosophy—then this kind of Corporation Tax should be fought bitterly and thoroughly.
The hon. Member for Manchester, Cheetham (Mr. Harold Lever) attempted to chide my right hon. Friend the Member for Bexley (Mr. Heath) on trying to introduce an ideological conflict into the debate. But on what subject should we have ideological conflict unless it is one of this character, and where better to have it than on the Floor of the Committee? The ultimate significance of this Corporation Tax is that it is a calculated piece of Socialism. It is designed, further, to insulate management from the shareholders and ultimately to give Whitehall a better position from which to take over the function of management.
It is quite clear that if the logic of this tax is followed through, and if Whitehall is given greater influence in the policy for investment, then a great deal of the future finance of companies will come from retained profits or from investment allowances which will be more selective. I am sure that this is the intention of hon. Members opposite. They have already indicated that they are totally dissatisfied with the working of the present investment allowances.
For these reasons, an Amendment designed to postpone the working of the Corporation Tax for a year is the least for which we could hope. I sincerely hope that the vote on the Amendment will be the precursor to the eventual death of the Corporation Tax as at present conceived and, indeed, of the Government.

Mr. Diamond: We have had a most valuable debate which has centred around an Amendment—

Mr. John Peyton: Does the right hon. Gentleman mean by rising to speak that he thinks that the debate has concluded? Many hon. Members on this side of the Committee still wish to speak, and hon. Members on his own side of the Committee have only just finished speaking.

The Temporary Chairman: Order. The hon. Member for Yeovil (Mr. Peyton) has been long enough in the House to know what is the general procedure. The Chief Secretary rose in his place and I called him. That does not


necessarily mean that the debate is finished.

Mr. Diamond: The debate has been going on since about 3.30 p.m. I have listened to every speech with the greatest care and interest. As many of the points are being repeated and some of them are based on misunderstandings, I thought that it might be convenient if I tried to remove some of the misunderstandings. If any hon. Member feels a desire to continue the debate afterwards, that is a matter which is not within my control.
I should not have dreamed of intervening at this stage had we not had a very full-run discussion on an Amendment which is appropriate for a discussion of the whole of the Corporation Tax, as I fully recognise. I hope that, by and large, I may deal with general questions which hon. and right hon. Gentlemen have raised affecting Corporation Tax rather than the narrow question of the Amendment. As hon. Members have made clear, this is not a wrecking Amendment. It would not have been selected by the Chair if it had been a wrecking Amendment. It is an Amendment with a view to postponing the tax for a year in the firm hope that in the course of that year the Conservative Party will become the Government and will kill the Corporation Tax. It is in no sense a wrecking Amendment. I am merely repeating what several hon. Members have said.
I have listened carefully to every speech, and I want to try to answer the criticisms which have been made on many of the broad questions. I hope that some hon. Members who have asked a number of very detailed questions will feel that they fall more naturally to be discussed on the Clauses dealing with specific points.
My right hon. Friend early took the view that this was a major change, although in the course of this Measure we wanted to leave undisturbed as many of the principles of tax computation as possible, so that business men and others who were affected would have the minimum disturbance compatible with the reform. Notwithstanding that, he took the view that here was a major change as to which it was right that there should

be the greatest possible advance notice of as many of the general principles and as many of the major details as could be given. Over the past six months, therefore, he has made statements to give the whole of the business community and all others affected the greatest possible information so that they could understand what is intended and consult their own interests and make representations. Many representations have been made and continue to be made right up to the present time—and, indeed, will be made after today.

Mr. Stratton Mills: And being ignored.

Mr. Diamond: No. We all listen very carefully to them. It is the Government's intention to find out as carefully as possible the effect of these wide-ranging changes on individual taxpayers in order to make sure that within the broad intent of the reform there is no individual injustice and no individual hardship. We shall continue to do that. We realise that it is fair game for right hon. Members on the Opposition Front Bench to have fun. This is not the first time that right hon. Gentlemen on the Front Bench, and hon. Members on other benches, have had political fun. But we intend to pursue our inquiries, to listen carefully to everything which is said and to all representations made, and to endeavour to make the legislation as perfect as possible at the first go. It is beyond the hope of any one of us that legislation should be so perfect that in years to come no adjustments and alterations will be needed—just as, when right hon. Gentlemen opposite were in Government, although they had the framework of the Income Tax law which had been in existence for nearly a century, each year and sometimes twice a year a Finance Bill was introduced containing many adjustments to relate the tax code to the needs of the day. We will listen carefully to what hon. Members have to say. We will turn a deaf ear to the insults and listen to the content of the speeches to obtain whatever benefit we may to improve the Bill.
I do not think that we are going to help to remove the uncertainty—and uncertainty has been the general complaint of hon. Gentlemen opposite and others—if we refrain from completing our legislation. Indeed, it is only when we


come to detailed consideration of this kind that we can have the full benefit of the considered views of all hon. Members.
I will restate some of the major principles. They have already been stated by my right hon. Friend in his Budget speech, I again referred to them at some length in my contribution and my right hon. Friend spoke fairly fully in this debate. The major purpose of the reform is to encourage the efficiency of industry and business. One cannot make individuals who are inefficient efficient. One can only encourage them towards efficiency and give them the tools to achieve it.
The greatest need for every business man in making his business more efficient is to have the wherewithal for additional growth and investment. We are, therefore, framing a tax structure under which a business man will, out of his realised profits, have 50 per cent. more cash available for investment and plough-back than he has under the present system. That is the first stage.
9.15 p.m.
Under the proposals, and comparing like with like—a 35 per cent. Corporation Tax rate which would produce the same as the existing rates of Income Tax and Profits Tax—there would be left, after striking the profits and paying the Corporation Tax, to each proprietor—and I mean the company, the individual, the business or whatever it is—almost exactly 50 per cent. more in cash with which to reinvest, to buy plant, new premises and so on, than under the present system.

Sir K. Pickthorn: rose—

Mr. Diamond: I will give way to the right hon. Gentleman. First, let me say that I cannot think of a single method by which the Government could encourage keen, growing businesses—particularly young businesses, which cannot go to the market and get capital—and assist industry more than that.

Sir K. Pickthorn: Is not the hon. Gentleman strangling himself with his own vocabulary? When he refers to "each proprietor" and says that each one will have so much more money to do desirable things, what does he mean by "proprietor"? How does he fit that

with his doctrine that shareholders and companies are and must be increasingly and wholly—his word was "absolutely"—different from the company? What or who is this "proprietor"?

Mr. Diamond: I am grateful for that intervention, because it enables me to make the position clear. I was referring to the ownership of the business. If by the use of the word "proprietor" I did not make the position clear, it might help if I say that I was referring to the company; the proprietor. I did not want to be misleading.

Sir K. Pickthorn: It was not misleading.

Mr. Diamond: I used the word "proprietor" thinking that it would be an easier term than "corporation".

Mr. Percy Grieve: Are not shareholders proprietors of a company and is not the market the best judge of whether a company is so go-ahead that it requires money? Would not the best way to advance efficiency in industry be to make the obtaining of capital dependent on the machinery of the market?

Mr. Diamond: I hope that hon. Gentlemen opposite will be good enough to allow me to make my speech. I will be glad to deal with all these matters. I hope that the Committee will not think me discourteous if I continue with my remarks without being interrupted all the time.
Having explained the position so far, the question is immediately asked: if this is the greatest possible encouragement to young and growing businesses, why not let them go to the market? I gave a detailed answer to that question on an earlier occasion, but I will repeat it shortly. The facts are that new cash is achieved on the market for the purpose of reinvestment in corporations to the proportion of approximately 9 per cent., according to the latest figures.
The test is a simple one—the position before the two-tier Profits Tax was removed. Previously we had a system which encouraged retention and that was replaced by a single-tier Profits Tax which removed that encouragement to retention. Therefore, there was further distribution, and the rate of growth of dividends went up by 50 per cent. as a result. Therefore, according to the theology of many hon. Members opposite,


one would have expected that as a result of the profits being distributed wise shareholders would have reinvested their dividends selectively with the best possible companies. That is how to achieve the best possible results. Unfortunately, they put their dividends into their pockets or into their bank accounts. It is no good hon. Members saying that this is non-sense, because I have checked what I say and I shall give the figures again.
I was challenged on the figures when I made it clear that prior to the removal of the two tiers, 8 per cent. of all the investment in equities came from new cash on the market, whereas in the period after the removal the figure rose to 9 per cent. There was an increase from 8 per cent. to 9 per cent.—practically no difference at all. Those figures were challenged, and I have had them very carefully rechecked. The answer is, in the period prior, 8·1 per cent., and in the period subsequent, 8·6 per cent. I gave round figures of 8 per cent. and 9 per cent., but if we come down to decimal points we find the answer is not a whole per cent. increase but a half per cent. increase.
That was the effect of removing the deterrent to distribution, and it demonstrates quite clearly (a) that the majority of equity capital, as one knows—the fresh money—comes from the realised profits of companies themselves, and (b) that the two-tier Profits Tax system was some encouragement to retention, and when that system was removed the philosophy of hon. Members opposite was given full rein, and the removal did not work.
We had the situation in Germany to demonstrate this even more clearly. For years, the Germans have had the most ample encouragement to distribution by having a very heavy rate of tax on retained profits and a very light rate of tax on distributed profits. They have done that for years, because they have no capital market and want to encourage one. After years of trying, they have now managed to raise from 2 per cent. to 3 per cent. the amount of money that comes from the market, and the balance of equity capital all comes from realised profits.
It is therefore absolutely clear that ours is the best way to encourage growth

and to enable companies that wish to be efficient to have the means of increasing their efficiency. I have more faith in those companies than have some hon. Members opposite. I have more faith that, given the tools of the trade, they will try to achieve the efficiency at their hand, and I think that the way we propose is quite clearly the best way of doing this.

Mr. Gower: Does the Chief Secretary say that 92 per cent. of the money is coming from retentions? Can he confirm that figure? If so, what span of all the companies does that cover? Is it limited merely to public limited companies?

Mr. Diamond: It is the whole span of companies. It is not selective, as is sometimes the case with figures from the other side. Incidentally, I apologise for having earlier laughed when Elliott Automation was mentioned. The reason was that I had just said to my hon. Friend here, "Just wait—Elliott Automation will be mentioned." and Elliott Automation was mentioned at that moment.
The figures cover the whole span of companies going to the market, but that does not mean that 92 per cent. of capital came from ploughed-back profits. A good deal comes from borrowing. Approximately 65 per cent. of equity capital comes from ploughed-back profits, 8 per cent. or 9 per cent. from the market, and the balance is borrowed—it may come from the market or privately. We are talking about equity capital. We are talking about growth, and this is the way to achieve it.

Mr. Heath: The hon. Gentleman has used these figures to such an enormous extent and he has used this argument so frequently that we have been constantly trying to check up on his figures. None of the authorities that we have consulted agree with his figures. The hon. Gentleman is talking purely about equity issues of companies over a particular field. He is excluding the question of borrowings which come from people's savings which come from the dividends they have been paid. He is using a useless comparison the whole time.

Mr. Diamond: Borrowings come largely from the banks. It has nothing to do with savings at all. The borrowings come largely from the banks; they come partly from private sources and partly from public sources. I hope the right hon. Gentleman is not making the simple point that we must have savings. Of course we must. There is no question about it. The simple question is, which is the best method of taxation to encourage companies towards growth, particularly those young and growing companies which have no access to the market? The answer is, by enabling them to have the largest possible amount of resources before they start to pay dividends. It is then up to them to decide whether to pay dividends or not.
Let me now give some indication of the scale of it all. A great deal of misunderstanding exists about the amount of dividends. The break-even point with Corporation Tax at 35 per cent.—that is a figure comparing like with like—is 51½ per cent. That is to say, a public company paying 51½ per cent. or less is paying no more tax under the new system than under the old. Everybody paying less than 51½ per cent. is paying less tax than under the present system—that is, 51½ per cent. of their profits. [An HON. MEMBER: "Gross or net?"] I do not know what the hon. Gentleman means by "gross or net". One does not pay 51½ per cent. of one's gross profits.

Mr. Patrick Jenkin: Before or after Corporation Tax?

Mr. Diamond: I am referring to 51½ per cent. of the profits before taking into account Profits Tax, Corporation Tax and any other tax. Those who pay 52 per cent. and more will be paying more under the new system. Those who pay 51 per cent. or less will be saving under the new system. We have not heard very much from those who will be saving as to how much they approve of this new scheme of taxation. The average rate of dividend is 50 per cent. So the average company making its average distribution will benefit. Of course, it will benefit. Domestic companies as a whole will benefit by about £100 million, comparing like with like and foreign investment will suffer to the same extent. Foreign investment will suffer to the extent of £100

million, before we deal with concessions, and there will be £100 million benefit to all domestic investment. The break-even point is 51½ per cent., and on the average distribution and all distributions less than that there will be a considerable saving. That is, by and large, the practical effect of what we are discussing.

Sir T. Brinton: rose—

Mr. Diamond: I am not giving way again.
I now come to a point which has been raised, the question of simplicity. I have referred to this break-even point of 51½ per cent. I wonder if the Commitee will forgive me if I go over one set of figures which illustrate this point of the 51½ per cent. and the question of simplicity or complexity.

Mr. Heath: On 35 per cent.?

Mr. Diamond: On 35 per cent. Corporation Tax which produces the same yield as the present Income Tax and Profits Tax. Therefore, we are comparing like with like. As a man of objectivity, fairness and intelligence the right hon. Gentleman naturally would wish to do that.
9.30 p.m.
If we have a figure of £100 for profits and take £35 for Corporation Tax we are left with a figure of £65. If we now take a gross dividend at 51½ per cent., from that we have a retained profit of 13½ per cent. To get back on the other side, on the present system we start off with profits of £100, deduct Profits Tax and Income Tax at 56¼ per cent., dividend gross and net at 30¼ per cent., and we are left with 13½ per cent., exactly the same figure, on a distribution of 51½ per cent. But let us look at the ordinary business man who wants to understand his business and the burden of taxation on it. Under the new system he makes £100 in any accounting period, and for every £100 a sum of £35 goes into Corporation Tax.
It is as simple as that, and I say with 35 years' experience as a practising accountant that the average business man for the first time will know what is happening year by year so far as the Inland Revenue and himself are concerned, without waiting for years for his accountants


to tell him the position. Every time he makes £100 he pays £35 Corporation Tax, or 35 per cent., on every £100 profit that he makes in the accounting period. If he wants it even easier than that, he can do it by the rule of thumb method and call it one-third—every time he makes £3 there is £1 for the Revenue and £2 for himself. It could not be much easier.
Let me compare the present system. First of all, he has to pay Profits Tax, and Profits Tax is calculated on a particular period. He then has to pay Income Tax which is calculated on an entirely different period, or partly on an overlapping period, or it may be a period some way back, or even a period during which he had not actually been trading. He does not know. There are all sorts of rules and the complexity is unendurable. All one can say is that no business man really knows the tax which he has to pay on the profits that he is making today under the present system. He does not know when the capital allowance applies—that is a different period, and again the investment allowance period is different. There are all these complications and it is beyond the wit of any lay business man to know month by month or quarter by quarter what the taxation is on his figures.
Under the new system he says every quarter, "I have made so much profit. I know what the Corporation Tax is and what my capital allowances are and I know exactly what is left for me." He knows this, quarter by quarter and year by year. That is what I mean by simplicity and I repeat that for the business man of the future life will be simplicity itself. The Committee should realise this and all those hon. and right hon. Members who are business men know full well that they have not the vaguest idea of the tax liability of their companies until they go to their accountant to work it out and he tells them months and months later. Every honest business man in the Chamber knows the truth of what I am saying. Therefore, this is one of the advantages that we are claiming for the introduction of the Corporation Tax.

Sir Cyril Osborne: rose—

Mr. Diamond: No, I cannot give way.
Then I come to the question of anomalies. The right hon. Gentleman

the Member for Altrincham and Sale (Mr. Barber), who opened the debate, criticised my right hon. Friend by reference to a particular company, a most unusual company—I hope I can say that without being too difficult about it—a company which had a capital involvement of about £6 million—

Mr. Barber: £7 million.

Mr. Diamond: —£6 or £7 million, and ordinary shares of £20,000. A curious sort of gearing. Our bachelor with £1 million a year is much more usual than a company of this kind, I suggest. The right hon. Gentleman said that this company would be affected. It would not be able to pay its dividend as it could under the present system. Precisely. I confirm that it is exactly this kind of company operating under the present system which the Public Accounts Committee, a Select Committee representing both sides, referred to in its Fourth Report, issued on 7th May, 1964. Referring precisely to this kind of company, the Select Committee made the following criticism:
Some of the companies had paid the whole of their dividends to parent companies, and in these cases the Comptroller and Auditor General was able to establish that the gross dividends used by the parent companies for repayment claims exceeded by £32 million the total of profits on which the subsidiaries had paid tax. In these few examples, there had been repayments of tax on £32 million (equivalent to tax of £12 million at the current standard rate) which had not been received by the Revenue and which, the Department confirmed, never would be received.
Under this very anomaly which we are ending, £12 million was the figure. It was not unlawful, but it was a consequence of the system which we are ending, a system under which one could distribute dividends notionally tax-paid, whereas we are now to have a system under which, if one pays one's dividend, one pays one's tax at the same time. I remind the Committee that that £12 million under the system we are ending is exactly the same figure as that taken by this Committee at the end of its long debate ending in approval of the Capital Gains Tax, a tax which next year will produce £12 million. That is the order of the matter to which I am referring. That is why we are happy to say that the kind of anomaly to which the right hon. Gentleman referred will no longer continue.
I have been asked by a number of hon. and right hon. Members how I


reconcile what I have been saying with the position of the close corporation. I am very glad that this matter has been raised because, clearly, we are at fault in that we have put forward a system which is much more helpful than the present one to the average business man and it has been misunderstood. Therefore, we should make endeavours to put the matter more clearly either in legislation or in the White Paper. But I must say that every criticism which has been founded on a misunderstanding could have been rectified by reference to the Clauses and, more particularly, to the Schedule. But it is a long and detailed Schedule, and I am glad to have the opportunity to explain the situation.
As most people know, the present position is that, in order to protect the Revenue against the Surtax payer who avoids the payment of Surtax by refraining from distributing profits accumulating in his company, the company can be challenged and, if the Special Commissioners are satisfied that there has been an inadequate distribution—inadequate by, perhaps, 5 per cent.—they can adopt the only remedy which is open to them, namely, to distribute 100 per cent of the remaining profits which have not been distributed. If there has been a distribution of 20 per cent. and it is clear that there should have been a distribution of 30 per cent., the Special Commissioners have to distribute the whole of the rest of the profits. That is the present position.
The right hon. Gentleman criticises the whole of the Bill because, instead of this matter being handled at Thames Ditton, in the future it will be handled more conveniently in the offices of inspectors of taxes all over the country. Instead of something that suits the convenience of those who practise in London, this will be convenient for those who practise in Birmingham, in Manchester—like my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever)—and all over the country. It is a ridiculous complaint to say that there will be a lack of fair treatment if individual inspectors of taxes deal with the matter instead of the Special Commissioners at Thames Ditton. The final answer is that the dissatisfied taxpayer can go to the courts. He can do that at present and he can do it in the future.
I have explained the present situation, that, if there is an inadequate distribution, the whole of the balance of the profits has to be distributed for Surtax purposes. The new situation is designed to take account of a new circumstance, the new circumstance being that not only can Surtax be avoided under the new system but Income Tax can be avoided as well. If a company makes profits, it pays Corporation Tax, but if it does not distribute dividends it does not pay any Income Tax.
Therefore, a small company—let us call it a one-man company for the moment—which holds its profits and does not distribute them will avoid both Surtax, as it would before, and Income Tax in addition. Therefore, one has to take care to see that the Revenue is fully protected, and by protecting the Revenue I mean that one has to take care to see that each person pays his fair share of Income Tax and there are not some people who leave their fair share of Income Tax to be borne by others.
The way we propose to do it is to see that there is adequate distribution. One way to clear the decks for the vast majority of small companies is by a rule that, if they make modest distribution—I shall give a figure in a moment—they are immediately taken out of the provisions regarding the close corporation. I refer to a distribution of 60 per cent.—

Sir C. Osborne: Modest?

Mr. Diamond: Will the hon. Gentleman wait? Everyone has taken this 60 per cent. to mean 60 per cent. of profits. It is nothing of the sort. People have not gone on to read the next section, only three lines further on. Before taking into account the 60 per cent., one deducts Corporation Tax, so it is 60 per cent. of profits less Corporation Tax, which, comparable with the present system, means a distribution of either 36 per cent., with Profits Tax at 40 per cent. or 39 per cent. with Profits Tax at 35 per cent. Therefore, a distribution of 39 per cent. of the net profits, compared with the kind of distribution which one talks about now, will take almost every small company out of the consideration of these Clauses.
There is, however, much more in it than that. If hon. Members read the Schedules, they will find repeated the


words which have been used in the previous Clauses. I am sure that my hon. Friend the Member for Cheetham will be interested in following me in paragraph 10(2) of Schedule 17, on page 213 of the Bill, where it states:
In determining how far a company could or could not make distributions up to the required standard without prejudice to the requirements of its business"—
that is its first consideration; and now come the words which are the exact repetition of Section 246 of the Income Tax Act, 1952, which my hon. Friend thought should be repeated and which are repeated:
the Commissioners concerned shall have regard not only to the current requirements of the company's business but also to such other requirements as may be necessary or advisable for the maintenance and development of the business".
The situation, therefore, is that if there is a distribution of 36 or 39 per cent., the relevance of these Clauses and this part of the Bill goes completely. If there is not such a distribution, but the business needs these funds for either its present or its future development, again it comes out. In short, the only concern of the Inland Revenue is to stop tax avoidance.
Let me make this quite clear. People have said, and naturally, "How do you reconcile this with the other part of the Bill which encourages retention?". It does not. Corporation Tax does not encourage retention. Corporation Tax encourage plough-back. There are three things that a company can do with its funds. It can distribute them to shareholders, reinvest them or retain them. To retain them and have them in portfolio investment, in the bank or in gilt-edged or whatever else one likes is not reinvestment. That is not plough-back.
9.45 p.m.
The right hon. Member for Altrincham and Sale invited us to consider the two-tier tax system. What that did was to encourage retention: that is, to use the right hon. Gentleman's words, "growing fat". We do not encourage growing fat. We encourage growing fit. One does that by getting slick and energetic and using one's funds to reinvest, have more assets, work harder and make more profits. That is the whole purpose of the Corporation Tax. It is wholly

consistent with the close corporation provisions.
We do not want a small or one-man business to retain its profits. If such a man retains his profits, he is in trouble, because if he retains them idly and leaves them in the bank obviously he is merely avoiding reasonable distribution and avoiding Surtax and Income Tax. lf, however, he makes a reasonable distribution or uses his profits to develop his business, he need never declare 1 per cent., so long as he continues to plough back fully the whole time and to have regard not only for the present, but for the future needs of his business. That is the reconciliation. For the first time, we really have got down to the heart of what the taxation business is about and how to encourage companies.
Finally—

Sir Harmar Nicholls: If there are good business reasons why 39 per cent. should not be redistributed, has the case to go to the commissioner to be decided or could it be settled at the level of the Income Tax collector?

Mr. Diamond: It can be settled in the ordinary way in correspondence between the accountant and the inspector of taxes, just as it is settled in the ordinary way, at present, in correspondence between the accountant and the Special Commissioners. Instead of the inconvenience of having people at Thames Ditton, which is a long way from Scotland, there will be inspectors of taxes all over the country who are there to serve the public and who will change around rapidly to secure similarity and consistency of treatment all over the country.

Sir C. Osborne: Is there any method of appeal?

Mr. Diamond: Yes, of course—to the Special Commissioners and the courts, in the ordinary way. The final arbiter will be the courts, as they are at the moment.
I hope that I have made it clear that what we are encouraging is plough-back and that what we are doing under the new provisions is a great relaxation from the existing provision so as to avoid troubling businessmen more than is necessary and to make it obvious that the only person in whom we are interested


is the businessman who makes large profits and avoids distributing them so as to avoid Surtax and Income Tax in his hands.

Sir C. Osborne: rose—

The Chairman: Order. I have no power to stop interruptions, but I heard the Chief Secretary say "Finally" some time ago.

Sir C. Osborne: As an ordinary businessman who is concerned with this problem, and with a close corporation, too, may I ask this question? The hon. Gentleman says that if we do not distribute our profits but we keep them idle and do not put them into new machinery and developments, we shall be taxed upon them. Suppose that we do not distribute the extra profits, but use them to buy subsidiary companies that will increase our turnover. Would that be free of tax?

Mr. Diamond: Subsidiary companies are a different question from portfolio investment. I have indicated that portfolio investment is neither distribution nor plough-back. I can answer the hon. Member quite simply. when a businessman develops his business, either by himself, through a subsidiary, through a consortium, or in whatever way he wants, so long as it is a developing business he will not be prejudiced by these new rules.
I hope that the hon. Gentleman, who is a very fair man, and all others who have been under a misapprehension, will help the business community generally by explaining that there has been very considerable misapprehension, perhaps by our not having put the matter as clearly as we should, and by removing this understanding, which is quite without foundation.
I want, finally, to deal with the very important question addressed to me by the right hon. Member for Hampstead (Mr. Brooke), about overseas investment. My right hon. Friend has made it so clear that there is hardly need for me to repeat it, but what we are proposing is that the amount of new investment going overseas should have regard to our balance of payments difficulties. That is all. Therefore, while we are in the position not to be able to afford it, we cannot look at investment abroad in amount with the same kindliness as we have done hitherto.
Last year, as everybody knows, there was a deficit of £750 million on our balance of payments. Half of it was long-term capital. As one of my hon. Friends pointed out, the total position of the country in terms of investment abroad is that we have borrowed short and lent long. This is not an easily manageable position and, therefore, we have to have special regard to foreign investment. That is all that is happening. To reduce the flow of new investment my right hon. Friend has allowed the Corporation Tax to apply as it applies in other countries.
The right hon. Gentleman asked me the real question: how does a British company operating abroad compare with an American company operating outside America? Are we under fair competition? We have not been under fair competition because America has had a Corporation Tax. Seventy other countries have had Corporation Tax, and in all these cases there could not be any question of spillover because they had not the same kind of system as we had. In our case, with one single Income Tax instead of two—a Corporation Tax and Income Tax—all these companies investing abroad have been on favoured terms. We are altering that.
However, when we alter anything and we have a new situation, the intelligent question to answer is: which was the right situation, the new or the old one? It is not right to say that we are changing from an old to a new situation and, therefore, the old one was right. We are changing from a situation in which our investors abroad were treated specially favourably compared with other countries' treatment of their investors abroad to a system under which they will be treated similarly. But to avoid any hardship while this process of change-over takes place, my right hon. Friend is proposing a total period of seven years for foreign investors to adjust their circumstances.
I think that this is a very reasonable arrangement indeed. Therefore, the £100 million to which I referred, and which otherwise would have been an additional burden on these companies, will be vastly reduced. There will be 100 per cent. relief under these concessions for the first three years and a tapering arrangement for the remaining four years. We are not opposed in any way to foreign


investment; we have to look at it more closely.
May I give the Committee one set of figures which will throw light on the matter? The average return to this country from all our foreign investment is 4 per cent. Eight per cent. is made. Half of it is reinvested abroad and 4 per cent. comes back to this country. I am not talking about the investor. The investor has plenty of people to look after him. We want to look after him reasonably, but the country has to be considered, too. The return on foreign investment to this country is 4 per cent. The comparison is the return on domestic investment, which is 15 per cent. Half of that goes in tax. The tax is used for what? Social services—housing, welfare, schools, doctors. That is what it is used for. That is of just as much value to us as other money in any other way. It is exactly the same thing. The comparison there is with 4 per cent. on foreign investment as a whole and 15 per cent. on domestic investment, without taking any account of the skills, of the employment, and of the other benefits which flow.
What I am saying, therefore, is that these things must be very fully considered, and I hope that I have satisfied the Committee, therefore, that this Amendment ought not to be carried, and that as soon as possible we ought to get on with the job of making Britain enterprising and efficient.

Mr. Heath: The debate on this Amendment has been a long one, and Dr. King, thanks to your generosity of interpretation of the Amendment, it has been possible for the Committee to have a wide-ranging debate. Hon. and right hon. Members on each side have taken part, for the greater part of the debate, one for one, and I think that their contributions have been extremely valuable. I know that there are still some of my hon. Friends who would like to take part. It is true, of course, that we have been able to discuss a large number of provisions, but in a general way. We shall be discussing them in further detail when we come to the specific Amendments, when we shall have an opportunity of pursuing these matters further.
It has been pleasant to welcome back to the debate the hon. Gentleman the

Member for Manchester, Cheetham (Mr. Harold Lever). We missed him in the late early hours of our last Committee sitting.

Mr. Harold Lever: I was here.

Mr. Heath: We heard nothing from him on Schedule 9 and the provisions for dealing with snoopers. He was already exhausted by that time, but today, as a sound capitalist, he has renewed his almost solitary fight to save his party from the anti-business tag which has now been attached to his Government. We all admire the ingenuity with which he does it and the freshness he brings to his task. Today, he has continued his form of backing the Chancellor to the hilt. As soon as we hear those familiar words, "What a splendid Chancellor he is; how wise he is; how generous he is; how co-operative he is" we know the knife is going in to the hilt.
There is only one thing on which between the two sides of the Committee we really differ, I think. We, as one of my hon. Friends said, take the view that the Chancellor is a responsible person; in fact, has done the things he has in the Bill because he is a responsible person and accepts responsibility for them.
The hon. Member for Cheetham, on the other hand, takes the view that the Bill is full of terrible things which the Chancellor did not think of either because he did not know or because he could not help it; therefore, this keeps him a wise, generous and helpful person. This is the only real difference between us. So it is possible for the hon. Gentleman to stand up at one moment and say about close companies—I took his words down, "These are iniquitous provisions". I have from time to time criticised the Chancellor and been accused of being uncharitable, but never have I said anything that corresponds to that, that these are "iniquitous provisions" which should never have been put in the Bill—and he backed the Chancellor to the hilt.

Mr. Harold Lever: The right hon. Gentleman might add that in the very next breath I asserted complete confidence that those iniquitous provisions would be deleted by the Chancellor.

Mr. Heath: Yes, but the hon. Gentleman then had the Chancellor squirming on the end of his dagger. He thought that he would get what he wanted, but this remains to be seen.
It has also been a pleasure to have the Chancellor taking part in the debate. Despite his protestations that he has taken more part in the debates on this Bill than any other Chancellor has on any other Finance Bill of recent years, I think that the right hon. Gentleman will agree that, certainly on the last part of the Bill, he did not, though he took part on two occasions in debates, one on the gilt-edged market.
10.0 p.m.
But today we have had a few airy remarks about ploughing back resources and, companies now having more to play around with, a cheery aside about his friends in India and that was all we had from him. This is what his hon. Friend the Member for Cheetham described as reducing the standard of the debate to its proper level. For once I find myself disagreeing with the hon. Gentleman.
While we are on the subject of India perhaps I could recall to the Chancellor part of Mr. Paul Chamber's letter, which has already been mentioned by my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) in which he said:
Total exports to India during the 15-year period were over £100 million. Our own investment in India, which stood at £1 million in 1950 has increased to £7 million but more than half of our £7 million has been recovered in net dividends and royalties both of which will be of growing benefit to I.C.I. and to the U.K. balance of payments. Their total exports to India have been £100 million investment has been £7 million and of that 50 per cent. has already come back in dividends and relief.
There is a particular example of what is happening in India and it has not justified what the Chancellor has given as his impression of what is happening there.
The Chancellor has been taking little part in the debates in this Committee. He has left the winding-up to his hatchet-man the Chief Secretary, who has been doing admirably—and on other occasions to that faithful and soft-voiced spaniel the Financial Secretary. This has enabled the Chancellor to stand apart from the great controversies which have

been sweeping over us. That is the reason I read in The Guardian today that the Chancellor is
that gentle, reasonable, kindly and moderate James Callaghan.
Iniquitous provisions which ought never to have been put into the Bill, said the hon. Member for Cheetham. That is how it happens, standing apart from the battle. The Chancellor put down last night a considerable number of Amendments about which we have already heard something. He said at the time that this was for the convenience of the Committee. I do wish that the Chancellor had "come clean" with us over this.
The real reason that we were circulated last night, the second circular in this Committee stage we have had so far, was not for the convenience of the Committee. It was so that he could tell the Stock Exchange and hold a Press conference before the House of Commons saw the Amendments. The purpose of this was to prevent another debacle such as he had on the gilt-edged market, when he made his announcement about capital gains. We may, therefore, say that the Chancellor was very wise to adopt this procedure. All I am suggesting is that he should not say it was done for the convenience of the Committee. Quite obviously, he did it to suit his own particular purpose.
We have been told by the Chief Secretary that there are more to come, but, alas, the Chancellor sat down this evening without telling us on which night and in what sequence they are to come. If he could kindly tell the Committee on which night he is to circularise us again at seven o'clock we would make the necessary personal arrangements to be able to deal with the situation, and it would be of general convenience to the Committee. My point yesterday about this was that these Amendments reflect the representations made before the Bill was published. It really is lamentable that they were not included in the Bill. Now they have been rushed out in the middle of the Committee stage and before we ourselves have had the opportunity of discussing what is in the Bill.
Some of my hon. and right hon. Friends, when they received the circular, recognised immediately the typewriter and said, "There is no doubt about it. This has come from the Inland Revenue."


The only question is whether, in winging its way from Somerset House to the Vote Office, the Chancellor happened to see it. I hope that he did.
Let us come to the particular remarks made by the Chief Secretary.

Mr. Callaghan: As the right hon. Gentleman went into great detail about the arrangements we are making, will he tell the Committee, too, that since he asked last night whether we would reprint Parts I to III of the Bill I have informed him we shall be able to do so and are doing our best to meet his convenience?

Mr. Heath: I did not inform the Committee and was not intending to do so, because—[HON. MEMBERS: "Oh."] I hope that the Chancellor will not lose his sense of proportion. I have always understood that anything which the Chancellor is kind enough to tell me is told to me in confidence. [HON. MEMBERS: "Oh."] It is a tradition between the two sides of the House that if a Minister tells a Member of the Opposition Front Bench something in confidence, that Member does not stand up in the House of Commons or in Committee and relate what he has been told. I propose to adhere to that tradition. When the Chancellor announces that this is what he is going to do, I shall thank him for adopting our suggestion.
The Chief Secretary has been talking about Corporation Tax, and no one is better qualified than he is to do so, because it was due to what seemed at the time to be a rather casual remark which he made at the Investors' Chronicle conference last July that the present Government and the Labour Party suddenly, and without warning, out of the blue as it were, were committed to the Corporation Tax. We know what followed afterwards. There was no mention of it at the Election, and then when the Government came into office there was a sudden announcement of the two new taxes.
I propose now to deal with one or two general points which have been raised—[Interruption.]—I say general points, because I shall come on to the specific points, which hon. Gentlemen opposite will like even less. The Chancellor has made a great deal of the fact that we on this side of the Committee are sup-

posed to be against reform. This is one of the general airy things that he said. Perhaps I might remind him of the White Paper issued by my right hon. Friend the Member for Barnet (Mr. Maudling), "A scheme for an Accounts Basis for Income Tax on Company Profits" which set out the first part of the work done by the Treasury and others when he was Chancellor, and which was an approach to this whole question of reform. [HON. MEMBERS: "When was that."] April, 1964. The Chancellor is not, therefore, justified in arguing that we have been opposed to reform in this matter, and I hope that that is now quite clear.
I now come on to the reasons why there is supposed to be a Corporation Tax, and I should like to deal with these one by way. First, there is the question of simplification. The Chief Secretary is reckless in giving hostages to fortune, and this evening he has given another one. He said that in future life for the business man would be simplicity itself. I am sure that he will be reminded of that for the rest of his political life.
The fact is that, as my right hon. Friend demonstrated, the law itself is not going to be all that much simpler, if at all. The legislation by reference which still exists makes it extremely complicated, and I believe that it will remain so. Perhaps we can learn from what we have had on the first part of the Bill with the Capital Gains Tax, which is already becoming very complicated, having started from a simple principle of 30 per cent. right across the board. We shall see the same thing happening with the Corporation Tax. As the Chief Secretary said, year after year we shall have to develop and change it to meet the situation. It is in this respect not going to be simpler in the way that the Chancellor has tried to describe.
The chief secretary said that accountants would no longer be needed. I cannot believe that this Bill is to enable us to do away with accountants. I cannot believe that the hon. Gentleman would be responsible for the demise of his own profession and that of my hon. Friend, who has been much maligned. If I thought that we were not going to have accountants after the Bill, it might to some extent change my attitude to it, but


I do not see that situation developing. Accountants come in to determine profits. Once they have been determined it is not difficult, with a few calculations, to work out how much will be left after the Treasury has taken its share, so that is not the point of the Corporation Tax at all.
Is the reason for it to enable company taxation to be varied separately from personal taxation? Again the answer is "No", because that can be done at the moment. It can be done through Profits Tax. Is it so that retained and distributed profits can be treated differently? Once again the answer is "No", because that can be done under the present system. Is it to stop avoidance? We have heard a great deal from the Chief Secretary about the case quoted by my right hon. Friend. The fact is that that case was cleared by the Inland Revenue, and it was legal.
If the Chancellor wanted to change the situation, I am advised that he could have done it by means of a simple amendment to the existing law. If the Chief Secretary had also gone on to tell us a large amount of what was said in the evidence to the Public Accounts Committee, he would then have been able to put the other side of the case and the reasons that no action had been taken thus far. If he had wanted to do this, it could have been done without the Corporation Tax.
We come finally to the argument in favour of the Corporation Tax which was developed by the Chief Secretary. This is that, if policy requires an extra tax on profits or a diminution in tax on profits, if one amalgamates Profits Tax and Income Tax, the different sets of rates and the different years, one will, in that respect, have a more straightforward tax. This is the major, I think the sole, argument in favour of the Corporation Tax. It is on this argument that the Chancellor ought to base his case, and not on the others. With it goes the advantage which has already been cited, that it assimilates our system nearer to that of Europe and the United States.
Of course, having said that, we then come to the point which the Chancellor always argues and which the Chief Secretary has argued, that there is only one form of Corporation Tax, and that

is the tax which he has in the Bill. This is, of course, not the case. In fact, his form of Corporation Tax—so far as I can find out—is different from all other forms of Corporation Tax which are all more similar to each other. It is this form of Corporation Tax which the Chancellor has chosen which has led him into the difficulties which have been emphasised today from both sides of the Committee. His Corporation Tax is not like that of the United States. It is not like that of Canada or of the Federal Republic or of France or the Netherlands. It is, in its way, a unique form of Corporation Tax. Our quarrel with the Chancellor is that he is insisting on this form of tax.

Mr. W. Baxter: As the right hon. Member seems to approve of the principle of Corporation Tax and has shown that there are various types of the tax in the world, if he should ever become the Chancellor of the Exchequer—[HON. MEMBERS: "Never."]—what type of Corporation Tax would he favour?

Mr. Heath: I would deal with the Corporation Tax in the light of the situation which arose. If that situation ever arose, any right hon. Gentleman on that side or on this side of the Committee would say exactly the same thing. It is the only responsible thing to say.
This is the reason we have criticised the Chancellor and this is why every one of his hon. Friends has emphasised the great disadvantages of this form of Corporation Tax, whether it is on overseas investment, on investment allowances, on close companies, whatever it is. Yet, in the face of that, the Chief Secretary could say last night on television, I am told:
It is all going beautifully, swimmingly and straightforwardly.
Another splendid hostage to fortune. Of course there are alternative methods which could have been used. The Chancellor could have used the split rate system which they have in the Federal German Republic, or the credit system which they have in Canada in which fixed credits are given. I shall not go into details, as I might be approaching the fringe of order.
I want to make the point that it is this form of tax which has caused all the difficulties which the Committee now has to go on discussing at length. What are


the consequences for policy? I should like to state these, also, clearly. The first is that it penalises dividends compared with the profits which are retained by public companies. Secondly, it taxes companies more heavily than partnerships with all the consequences which my hon. Friend the Member for Wimbledon (Sir C. Black) pointed out. Thirdly, it taxes growing private companies more heavily than public companies because of the close companies provision.
The fourth point is that it devalues the investment allowances. There is absolutely no doubt about that. Fifth, it makes the preference dividends more expensive than debenture interest with the consequence which is well known to many companies quite differently constructed from the one which my hon. Friend has been dealing with. Sixth, it means probably a complete alteration in the investment policies of charities which we have already discussed in part in dealing with the Capital Gains Tax provisions of the Bill.
Seventh, it heavily penalises income from overseas investment, and it does it in a random and haphazard way. This is a further criticism, even if one accepts the Chancellor's principles. Eighth, it discourages portfolio investment in the United Kingdom by foreigners. Ninth, the other side of the coin, it loses a lot of revenue for the Chancellor from foreign companies here in the United Kingdom which distribute their profits overseas.
The Chancellor is making it infinitely more difficult for British companies investing overseas, while foreign companies investing here get off much more lightly. Those are the nine policy consequences of the Chancellor's action. The Chief Secretary has certainly not proved his case on any of those points.
10.15 p.m.
My right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd) dealt with distribution and emphasised, as did the Leader of the Liberal Party, the great power which these provisions give to corporations, which can indulge in unwise diversification and can also sit on their resources. This is not an academic question in any way, as anyone knows who has talked in the past 10 years

to those who have been involved in mergers and take-overs in this country. The finance directors will tell anyone that they were shocked by the cash holdings which they found in many of those companies and which were not being put to good use. The result of the merger and take-over was that those holdings were put to good use by a much more dynamic company. That is the existing situation, and the Chancellor is making it worse. That is why we criticise him.
The hon. Member for Cheetham attacked him on this and said that he thoroughly supported us and, what is more, that he forced a Division in favour of the differential Profits Tax and that neither party supported him. After that we came to agree with him, and on the next Amendment it will not be necessary for him to force a Division, because we shall force one and he can support us without any difficulty at all.

Mr. Harold Lever: I shall give the right hon. Gentleman and his hon. Friends the same support in the Division on this point of principle as he gave me.

Mr. Heath: I want to deal with the question of investment in one other aspect which I believe is in the Chancellor's mind and, if not in his mind, at any rate in the minds of many of his colleagues. He believes that small companies should plough back rather than create dividends and that there would then be better investment. This will mean, broadly speaking, that dividends will be reduced, and this, I think, is what the Chancellor wants. He wants it in order to please those who are trying to get an incomes policy. That is the reason. Of course, if he is to do this he wants also to prevent investment overseas. Because if he is to reduce the return paid out in this country, people will invest not in this country but overseas where there is a better return.
The right hon. Gentleman's policy, therefore, holds together, but it is essential to see what the policy is. The policy is to reduce the return on investment in this country and then to prevent people from investing anywhere else, so that they must accept the reduced return here. He is doing this in what he believes is a genuine attempt to get an incomes policy, but we had better be quite plain about


what he is doing and why he is doing it. This is why he is adopting this structure of the Corporation Tax.
The Chief Secretary has explained a great deal of the Bill about close companies. I agree with the hon. Member for Cheetham that the Government have only themselves to blame for the mess into which they have got themselves over the close companies and for all the anxieties which they have caused and all the criticism which has been aroused. The Chief Secretary pointed out that the same words are used in Schedule 17 as are in the Act of 1952. But the same words are not used in the body of the Bill; they are not used in the Clause. When the Chancellor was asked about this on Second Readiing he did not tell us about the Schedule. He said, "I think the words mean the same," or "I want them to mean the same". It is only at this stage that the Chief Secretary has tried to set these anxieties at rest. All this difficulty could have been avoided long ago.
My hon. Friend the Member for Kidderminster (Sir T. Brinton) emphasised a substantive point. The plain fact, to which the Chief Secretary did not address himself, is that the definition of close companies is much wider than the old formula. The Chief Secretary has given no reason why this should be so.

Mr. Diamond: I will.

Mr. Heath: The Chief Secretary says that he will do so. Presumably he means when he has had a few more days to find out. Are B.P. a close company or the great stores like Marks and Spencer and some other great companies? Surely the Chief Secretary could have told us long ago why this definition has to be so wide. The hon. Member for Cheetham said that the onus is to be changed and we agree with him. Again, we have had no explanation why the onus should have been changed in this way. These provide yet another example of how the Government have created trouble for themselves and have only themselves to blame.
The hon. Member for Cheetham wanted the Government to look again at the question of preference dividends. We agree with him there. He went on to say that in any case this was not the sort of Corporation Tax which he would have

introduced. He is justifying everything that we have said about what the Chancellor has adopted.
May I add a word about the question of 35 per cent. or 40 per cent. The Chief Secretary always bases his figures on 35 per cent. The Chancellor has been much more forthcoming, and even in the Paper which he circulated last night he again used the expression, "a charge which is not expected to exceed 40 per cent. in Corporation Tax". Every business man who looks at this cannot say, "It will be 35 per cent. and I will make all my plans on 35 per cent.". If the Chancellor says that it is not likely to exceed 40 per cent., he must prepare for the worst. Every business man will, therefore, make his plans on the basis of 40 per cent. That is why so many of the Chief Secretary's arguments are undermined. The Chancellor of the Exchequer is wrong—there are five points in the scale. He said that there were four. There are five points involved in the difference concerning this total of £150 million, and this makes an immense difference to all the calculations.

Mr. Callaghan: There are four points—36, 37, 38, and 39.

Mr. Heath: And 40. The Chancellor has always been very cynical about the use of matchsticks, but I do not think that we should descend to the use of counting on our fingers. We cannot have the Chancellor doing his sums in public in the Committee on his fingers. The Chief Secretary always emphasises how much better off—

Mr. E. Shinwell: On a point of order, Mr. Speaker, I should say Sir Horace—[Interruption.]

The Chairman: Order. I hope that the Committee will allow me to hear the point of order which the right hon. Gentleman is putting.

Mr. Shinwell: That was only intelligent anticipation, Dr. King. Did you observe that an hon. Gentleman opposite threw something across the Chamber—[An HON. MEMBER: "A box of matches."]—and is that in accord with the decorum of Parliament?

The Chairman: I assure the right hon. Gentleman that I noted what happened. It did not go across the Chamber. I nevertheless deprecate what happened.

Mr. Heath: I agree with you, Dr. Kitts, and suggest that we had better stick to the Chancellor's fingers.
The Chief Secretary has constantly emphasised, as has the Chancellor, how much more money companies will have with which to play around, but that applies to only some companies. How and why are they going to have the extra money if the figure is kept at 35 per cent. and the like-for-like relationship applies? They will have it because two lots of companies will provide the extra; those which trade predominantly overseas and those which receive investment allowances, including those in the development districts. That is where the price will be paid and that is the part which the Chief Secretary never emphasises.
The effect on overseas investment is the last point with which I will deal, but it is a major item. The Committee has already discussed it for some hours today. Many examples have been given of the impact on individual companies and we will be able to give them again when we discuss the coming Amendments. I will not, therefore, give them now. I do not accept the Chief Secretary's figures in regard to the return on overseas investment. The Chief Secretary himself gave the figure of an 8 per cent. return to this country. All the figures that we can find support that. We have quite separate figures which support an 8 per cent. return. But the Chief Secretary says, "Why should we not have it here if we get more than 8 per cent. return, because then the Treasury will get a greater return from taxation and will be able to spend the money on the social services?"
However, that completely overlooks all the overseas consequences of investment overseas. It is not only a question of getting 8 per cent., or whatever figure it is, back but of getting all the other benefits from the overseas investment. Therefore, to say that one must judge purely on the figure of return so that one can have it in this country and get more for the Treasury, which can be spent on the social services, is so far out of relationship with what is going on in the rest of the world as to be unbelievable. That was the whole tenor of his argument and it supports my previous thesis of what the Chancellor really

wants to do, which is to get more investment in this country at the expense of investment overseas, which is investment essential to our balance of payments. We should get more investment in this country from higher savings. That should be our aim.
When we consider the developing countries, the argument is that the investment is declining. What is the point, even if it is declining, of making it worse through the Corporation Tax? There is absolutely no justification for it. What is more, we still have a very large amount of investment in the developing countries. Why damage that? After all, the Finance Minister of Malay has expressed himself on this subject in public and has said that this is going to damage Malaysia—so much so that he is prepared to offer haven to British companies which will move their residences from this country to Malaysia. I have no doubt that the Chancellor would come down firmly and stop that because it would be in accordance with his policy for him to do so.
This does not alter the damage which those in the developing countries and the Commonwealth see from the whole aspect of this policy. The hon. Member for Meriden (Mr. Rowland), in an interesting speech, said exactly what he would like the Chancellor to do. Every proposal he put forward was an absolute condemnation of the Bill. He said that he was glad that the Chancellor had extended the full-time period of overspill because that would give the right hon. Gentleman time in which to see the whole investment position and to find out exactly what was going on. Could there be a bigger condemnation of the undue haste and ill preparation of the Bill? We deplore the action that is being taken. We will consider all the Amendments and, despite the transitional arrangements—they will not meet the fundamental problem of overseas investment—

Mr. Rowland: Before the right hon. Gentleman proceeds, since he was selective in referring to my speech, would he not agree that I was praising the Chancellor for having made concessions for which not only hon. Members but many people outside had pressed?

Mr. Heath: That is true and I accept it. The reason why the hon. Gentleman was glad about that was because it


would give the Chancellor time in which to find out just what the situation is with regard to overseas investment. That is a clear condemnation of the Chancellor for acting without knowing the position.

Mr. Callaghan: Would the right hon. Gentleman give a clear answer to this question? Does he think that overseas investment in its present form should continue at its present rate unchecked?

Mr. Heath: I fully accept the situation that new overseas investment may have to be reduced. [HON. MEMBERS: "Oh."] Yes, I accept that. I accepted it in the Second Reading debate. What we have challenged is the damage that will be done to existing overseas investment. What we are now challenging is the haphazard way in which the Chancellor, through this tax, is dealing with new investment overseas, and that is our major criticism.
I will deal with the reasons why the Chancellor should accept the Amendment and postpone the introduction of the tax for a year. The Chief Secretary made the point, albeit a political point, that if this tax were postponed for a year, the Government might be changed. That is not only fair, but very likely. However, looking at it from the Chancellor's point of view, he is not only hoping but making a last despairing effort to keep the Government in office.
10.30 p.m.
What are our arguments for postponing the operation of this tax for a year? First, there are the complications which are quite apparent to the Committee in dealing with this part of the Bill at this time. After all, it is well known that not even the professional associations have been able to give anything like proper consideration to this part of the Bill with its 40 Clauses. Certainly, there has not been time for hon. Members to discuss with their advisers and the professional associations and so on what should be done to the Bill. We just have to press on as best we can with these complications—

Mr. Callaghan: That means never doing it.

Mr. Heath: It is not a case of never doing it, but of doing it, if the Chan-

cellor decides to do it, in the right way and at the right time.
Secondly, there will be great complications about bringing this tax into action when to do so requires full and detailed preparation. The Chancellor made a very interesting statement this afternoon when he said that he was quite convinced that, once we were through the transitional problems, all would be well. That is just the sort of joyfully confident statement which we are used to hearing from the right hon. Gentleman, but there is a very big "if"—"once we are through the transitional period". What the companies need is time to prepare to get through the transitional period and they are not getting it.
The third reason is that it would leave the Chancellor time to deal properly with the question of investment allowances. So far, he has dealt lightheartedly with them. He said that they would be sliced, severely reduced, that he had a few views about them anyhow, that he would like to look at the whole thing and that if, in due course, he decided to do something about them, he would. That is not good enough for firms which are concerned with investment allowances, especially firms in the development districts. The right hon. Gentleman has been misled by one sentence in the N.E.D.C. Report, taken it for granted and decided upon it. Postponement of this tax for a year would give him time to examine investment allowances, reach his own conclusions and come forward with a properly considered proposal for the Committee.
The fourth reason is that there would be more time for the renegotiation of double taxation agreements, which the Chancellor has told us must take place.
The fifth reason is that as he is prepared to increase the transitional full relief for a year, he might as well have delayed operation of this part of the Bill for a year and saved himself that part of the full relief which is now giving as a result of his Amendment announced last night about overspill relief. This would give the Committee proper time to consider the Bill and it would give companies time to make any transitional arrangements and himself proper time to organise the agreements and to deal with investment allowances. He would still have saved an additional year of the full


rate of this transitional relief if he still thought that it should go forward.
These seem to us to be very powerful and serious and genuine reasons why the Amendment should be accepted, and I

therefore hope that my right hon. and hon. Friends will support it in the Lobby.

Question put, That the words "1964 and 1965" stand part of the Clause:—

The Committee divided: Ayes 281, Noes 281.

Division No. 160.]
AYES
[10.33 p.m.


Abse, Leo
Fitch, Alan (Wigan)
Lever, Harold (Cheetham)


Albu, Austen
Fletcher, Sir Eric (Islington, E.)
Lewis, Arthur (West Ham, N.)


Allaun, Frank (Salford, E.)
Fletcher, Ted (Darlington)
Lewis, Ron (Carlisle)


Alldritt, Walter
Fletcher, Raymond (Ilkeston)
Lipton, Marcus


Allen, Scholefield (Crewe)
Floud, Bernard
Lomas, Kenneth


Armstrong, Ernest
Foley, Maurice
Loughlin, Charles


Atkinson, Norman
Foot, Sir Dingle (Ipswich)
Mabon, Dr. J. Dickson


Bacon, Miss Alice
Foot, Michael (Ebbw Vale)
McCann, J.


Bagier, Gordon A. T.
Ford, Ben
MacColl, James


Barnett, Joel
Fraser, Rt. Hn. Tom (Hamilton)
MacDermot, Niall


Baxter, William
Freeson, Reginald
McGuire, Michael


Beaney, Alan
Galpern, Sir Myer
McInnes, James


Bence, Cyril
Garrett, W. E.
McKay, Mrs. Margaret


Bennett, J. (Glasgow, Bridgeton)
Garrow, A.
Mackenzie, Gregor (Rutherglen)


Binns, John
Ginsburg, David
Mackie, John (Enfield, E.)


Bishop, E. S.
Gourlay, Harry
McLeavy, Frank


Blackburn, F.
Greenwood, Rt. Hn. Anthony
MacPherson, Malcolm


Blenkinsop, Arthur
Gregory, Arnold
Mahon, Peter (Preston, S.)


Boardman, H.
Griffiths, David (Rother Valley)
Mahon, Simon (Bootle)


Boston, T. G.
Griffiths, Rt. Hn. James (Llanelly)
Mallalieu.J.P.W. (Huddersfield.E.)


Bottomley, Rt. Hn. Arthur
Griffiths, Will (M'chester, Exchange)
Manuel, Archie


Bowden, Rt. Hn. H. W. (Leics S.W.)
Gunter, Rt. Hn. R. J.
Mapp, Charles


Boyden, James
Hale, Leslie
Mason, Roy


Braddock, Mrs. E. M.
Hamilton, James (Bothwell)
Mayhew, Christopher


Bradley, Tom
Hamilton, William (West Fife)
Mellish, Robert


Bray, Dr. Jeremy
Hamling, William (Woolwich, W.)
Mendelson, J. J.


Broughton, Or. A. D. D.
Harper, Joseph
Mikardo, Ian


Brown, Rt. Hn. George (Belper)
Harrison, Walter (Wakefield)
Millan, Bruce


Brown, Hugh D. (Glasgow, Provan)
Hart, Mrs. Judith
Miller, Dr. M. S.


Buchan, Norman (Renfrewshire, W.)
Hattersley, Roy
Milne, Edward (Blyth)


Buchanan, Richard
Hazell, Bert
Molloy, William


Butler, Herbert (Hackney, C.)
Healey, Rt. Hn. Denis
Monslow, Walter


Butler, Mrs. Joyce (Wood Green)
Henderson, Rt. Hn. Arthur
Morris, Alfred (Wythenshawe)


Callaghan, Rt. Hn. James
Herbison, Rt. Hn. Margaret
Morris, Charles (Openshaw)


Carmichael, Neil
Hill, J. (Midlothian)
Morris, John (Aberavon)


Carter-Jones, Lewis
Hobden, Dennis (Brighton, K'town)
Mulley,Rt.Hn.Frederick(SheffieldPk)


Castle, Rt. Hn. Barbara
Holman, Percy
Murray, Albert


Chapman, Donald
Horner, John
Neal, Harold


Coleman, Donald
Houghton, Rt. Hn. Douglas
Newens, Stan


Conlan, Bernard
Howarth, Harry (Wellingborough)
Noel-Baker, Francis (Swindon)


Corbet, Mrs. Freda
Howarth, Robert L. (Bolton, E.)
Noel-Baker, Rt.Hn.Philip(Derby,S.)


Cousins, Rt. Hn. Frank
Howell, Denis (Small Heath)
Norwood, Christopher


Craddock, George (Bradford, S.)
Howie, W.
Oakes, Gordon


Crawshaw, Richard
Hoy, James
Ogden, Eric


Cronin, John
Hughes, Cledwyn (Anglesey)
O'Malley, Brian


Crosland, Rt. Hn. Anthony
Hughes, Emrys (S. Ayrshire)
Oram, Albert E. (E. Ham, S.)


Crossman, Rt. Hn. R. H. S.
Hughes, Hector (Aberdeen, N.)
Orbach, Maurice


Cullen, Mrs. Alice
Hunter, Adam (Dunfermline)
Orme, Stanley


Dalyell, Tam
Hunter, A. E. (Feltham)
Oswald, Thomas


Darling, George
Irvine, A. J. (Edge Hill)
Owen, Will


Davies, G. Elfed (Rhondda, E.)
Irving, Sydney (Dartford)
Padley, Walter


Davies, Harold (Leek)
Jackson, Colin
Page, Derek (King's Lynn)


Davies, Ifor (Gower)
Jay, Rt. Hn. Douglas
Paget, R. T.


Davies, S. O. (Merthyr)
Jeger, George (Goole)
Palmer, Arthur


Delargy, Hugh
Jeger,Mrs.Lena(H'b'n&amp;St.P'cras,S.)
Pannell, Rt. Hn. Charles


Dell, Edmund
Jenkins, Hugh (Putney)
Pargiter, G. A.


Dempsey, James
Jenkins, Rt. Hn. Roy (Stechford)
Park, Trevor (Derbyshire, S.E.)


Diamond, John
Johnson, Carol (Lewisham, S.)
Parker, John


Dodds, Norman
Johnson,James(K'ston-on-Hull,W.)
Parkin, B. T.


Doig, Peter
Jones, Dan (Burnley)
Pavitt, Laurence


Donnelly, Desmond
Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)
Pearson, Arthur (Pontypridd)


Driberg, Tom
Jones, J. Idwal (Wrexham)
Peart, Rt. Hn. Fred


Duffy, Dr. A. E. P.
Jones, T. W. (Merioneth)
Perry, Ernest G.


Dunn, James A.
Kelley, Richard
Popplewell, Ernest


Dunnett, Jack
Kenyon, Clifford
Prentice, R. E.


Edwards, Rt. Hn. Ness (Caerphilly)
Kerr, Mrs. Anne (R'ter &amp; Chatham)
Price, J. T. (Westhoughton)


Ennals, David
Kerr, Dr. David (W'worth, Central)
Probert, Arthur


Ensor, David
Lawson, George
Pursey, Cmdr. Harry


Evans, Albert (Islington, S.W.)
Leadbitter, Ted
Randall, Harry


Evans, Ioan (Birmingham, Yardley)
Ledger, Ron
Rankin, John


Fernyhough, E.
Lee, Rt. Hn. Frederick (Newton)
Redhead, Edward


Finch, Harold (Bedwellty)
Lee, Miss Jennie (Cannock)
Rees, Merlyn




Reynolds, G. W.
Solomons, Henry
Watkins, Tudor


Rhodes, Geoffrey
Soskice, Rt. Hn. Sir Frank
Weitzman, David


Richard, Ivor
Stonehouse, John
Wells, William (Walsall N.)


Roberts, Albert (Normanton)
Stones, William
White, Mrs. Eirene


Roberts, Goronwy (Caernarvon)
Strauss, Rt. Hn. G. R. (Vauxhall)
Whitlock, William


Robertson, John (Paisley)
Summerskill, Hn. Dr. Shirley
Wigg, Rt. Hn. George


Robinson, Rt. Hn.K.(St. Pancras,N.)
Swain, Thomas
Wilkins, W. A.


Rodgers, William (Stockton)
Swingler, Stephen
Willey, Rt. Hn. Frederick


Rogers, George (Kensington, N.)
Symonds, J. B.
Williams, Alan (Swansea, W.)


Rose, Paul B.
Taylor, Bernard (Mansfield)
Williams, Clifford (Abertillery)


Ross, Rt. Hn. William
Thomas, George (Cardiff, W.)
Williams, Mrs. Shirley (Hitchin)


Rowland, Christopher
Thomson, George (Dundee, E.)
Williams, W. T. (Warrington)


Sheldon, Robert
Thornton, Ernest
Willis, George (Edinburgh, E.)


Shinwell, Rt. Hn. E.
Tinn, James
Wilson, Rt. Hn. Harold (Huyton)


Shore, Peter (Stepney)
Tomney, Frank
Wilson, William (Coventry, S.)


Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)
Tuck, Raphael
Winterbottom, R. E.


Silkin, John (Deptford)
Urwin, T. W.
Woodburn, Rt. Hn. A.


Silkin, S. C. (Camberwell, Dulwich)
Varley, Eric G.
Woof, Robert


Silverman, Julius (Aston)
Wainwright, Edwin
Wyatt, Woodrow


Skeffington, Arthur
Walden, Brian (All Saints)
Zilliacus, K.


Slater, Joseph (Sedgefield)
Walker, Harold (Doncaster)
TELLERS FOR THE AYES:


Small, William
Wallace, George
Mr. Charles Grey and


Smith, Ellis (Stoke, S.)

Mrs. Harriet Slater.




NOES


Agnew, Commander Sir Peter
Corfield, F. V.
Harris, Reader (Heston)


Alison, Michael (Barkston Ash)
Costain, A. P.
Harrison, Brian (Maldon)


Allan, Robert (Paddington, S.)
Courtney, Cdr. Anthony
Harrison, Col. Sir Harwood (Eye)


Allason, James (Hemel Hempstead)
Craddock, Sir Beresford (Spelthorne)
Harvey, Sir Arthur Vere (Macclesf'd)


Amery, Rt. Hn. Julian
Crawley, Aidan
Harvey, John (Walthamstow, E.)


Anstruther-Gray, Rt. Hn. Sir W.
Crosthwaite-Eyre, Col. Sir Oliver
Harvie Anderson, Miss


Astor, John
Crowder, F. P.
Hastings, Stephen


Atkins, Humphrey
Cunningham, Sir Knox
Hawkins, Paul


Awdry, Daniel
Curran, Charles
Hay, John


Baker, W. H. K.
Currie, G. B. H.
Heald, Rt. Hn. Sir Lionel


Balniel, Lord
Dalkeith, Earl of
Heath, Rt. Hn. Edward


Barber, Rt. Hn. Anthony
Dance, James
Hendry, Forbes


Barlow, Sir John
Davies, Dr. Wyndham (Perry Barr)
Higgins, Terence L.


Batsford, Brian
d'Avigdor-Goldsmid, Sir Henry
Hiley, Joseph


Beamish, Col. Sir Tufton
Dean, Paul
Hill, J. E. B. (S. Norfolk)


Bennett, Sir Frederic (Torquay)
Deedes, Rt. Hn. W. F.
Hirst, Geoffrey


Bennett, Dr. Reginald (Gos &amp; Fhm)
Digby, Simon Wingfield
Hobson, Rt. Hn. Sir John


Berkeley, Humphry
Doughty, Charles
Hogg, Rt. Hn. Quintin


Berry, Hn. Anthony
Douglas-Home, Rt. Hn. Sir Alec
Hooson, H. E.


Bessell, Peter
Drayson, G. B.
Hopkins, Alan


Bitten, John
du Cann, Rt. Hn. Edward
Hordern, Peter


Biggs-Davison, John
Eden, Sir John
Hornby, Richard


Bingham, R. M.
Elliot, Capt. Walter (Carshalton)
Hornsby-Smith, Rt. Hn. Dame P.


Birch, Rt. Hn. Nigel
Elliott, R. W.(N'c'tle-upon-Tyne,N.)
Howard, Hn. G. R. (St. Ives)


Black, Sir Cyril
Eyre, Reginald
Howe, Geoffrey (Bebington)


Blaker, Peter
Farr, John
Hunt, John (Bromley)


Bossom, Hn. Clive
Fell, Anthony
Hutchison, Michael Clark


Bowen, Roderic (Cardigan)
Fisher, Nigel
Iremonger, T. L.


Box, Donald
Fletcher-Cooke, Charles (Darwen)
Irvine, Bryant Godman (Rye)


Boyd-Carpenter, Rt. Hn. J.
Fletcher-Cooke, Sir John (S'pton)
Jenkin, Patrick (Woodford)


Boyle, Rt. Hn. Sir Edward
Foster, Sir John
Jennings, J. C.


Braine, Bernard
Fraser,Rt.Hn.Hugh(St'fford &amp; Stone)
Johnson Smith, G. (East Grinstead)


Brewis, John
Fraser, Ian (Plymouth, Sutton)
Johnston, Russell (Inverness)


Brinton, Sir Tatton
Gammans, Lady
Jones, Arthur (Northants, S.)


Bromley-Davenport,Lt.-Col.Sir Walter
Gardner, Edward
Jopling, Michael


Brooke, Rt. Hn. Henry
Gibson-Watt, David
Joseph, Rt. Hn. Sir Keith


Brown, Sir Edward (Bath)
Giles, Rear-Admiral Morgan
Kaberry, Sir Donald


Bruce-Cardyne, J.
Gilmour, Ian (Norfolk, Central)
Kerby, Capt. Henry


Bryan, Paul
Gilmour, Sir John (East Fife)
Kerr, Sir Hamilton (Cambridge)


Buchanan-Smith, Alick
Glover, Sir Douglas
Kilfedder, James A.


Buck, Antony
Glyn, Sir Richard
Kimball, Marcus


Bullus, Sir Eric
Goodhart, Philip
King, Evelyn (Dorset, S.)


Burden, F. A.
Goodhew, Victor
Kirk, Peter


Buxton, Ronald
Gower, Raymond
Lagden, Godfrey


Campbell, Gordon
Grant, Anthony
Lambton, Viscount


Carlisle, Mark
Grant-Ferris, R.
Lancaster, Col. C. G.


Carr, Rt. Hn. Robert
Gresham Cooke, R.
Langford-Holt, Sir John


Cary, Sir Robert
Grieve, Percy
Legge-Bourke, Sir Harry


Chataway, Christopher
Griffiths, Eldon (Bury St. Edmunds)
Lewis, Kenneth (Rutland)


Chichester-Clark, R.
Griffiths, Peter (Smethwick)
Litchfield, Capt. John


Clark, Henry (Antrim, N.)
Grimond, Rt. Hn. J.
Lloyd,Rt.Hn.Geoffrey(Sut'nC'dfield)


Clark, William (Nottingham, S.)
Gurden, Harold
Lloyd, Ian (P'tsm'th, Langstone)


Cole, Norman
Hall, John (Wycombe)
Lloyd, Rt. Hn. Selwyn (Wirral)


Cooke, Robert
Hall-Davis, A. G. F.
Longbottom, Charles


Cooper, A. E.
Hamilton, Marquess of (Fermanagh)
Longden, Gilbert


Cooper-Key, Sir Neill
Hamilton, M. (Salisbury)
Loveys, Walter H.


Cordle, John
Harris, Frederic (Croydon, N.W.)
Lubbock, Eric







Lucas, Sir Jocelyn
Percival, Ian
Taylor, Edward M. (G'gow,Cathcart)


McAdden, Sir Stephen
Peyton, John
Taylor, Frank (Moss Side)


Mackenzie, Alasdair (Ross&amp;Crom'ty)
Pickthorn, Rt. Hn. Sir Kenneth
Teeling, Sir William


Maclean, Sir Fitzroy
Pike, Miss Mervyn
Temple, John M.


Macleod, Rt. Hn. Iain
Pitt, Dame Edith
Thatcher, Mrs. Margaret


McMaster, Stanley
Powell, Rt. Hn. J. Enoch
Thomas, Sir Leslie (Canterbury)


McNair-Wilson, Patrick
Price, David (Eastleigh)
Thomas, Rt. Hn. Peter (Conway)


Maginnis, John E.
Prior, J. M. L.
Thompson, Sir Richard (Croydon,S.)


Maitland, Sir John
Pym, Francis
Thorneycroft, Rt. Hn. Peter


Marples, Rt. Hn. Ernest
Quennell, Miss J. M.
Tiley, Arthur (Bradford, W.)


Marten, Neil
Ramsden, Rt. Hn. James
Tilney, John (Wavertree)


Maude, Angus
Rawlinson, Rt. Hn. Sir Peter



Mawby, Ray
Redmayne, Rt. Hn. Sir Martin
Turton, Rt. Hn. R. H.


Maxwell-Hyslop, R. J.
Rees-Davies, W. R.
Tweedsmuir, Lady


Maydon, Lt.-Cmdr. S. L. C.
Renton, Rt. Hn. Sir David
van Straubenzee, W. R.


Meyer, Sir Anthony
Ridsdale, Julian
Vaughan-Morgan, Rt. Hn. Sir John


Mills, Peter (Torrington)
Roberts, Sir Peter (Heeley)
Vickers, Dame Joan


Mills, Stratton (Belfast, N.)
Robson Brown, Sir William
Walder, David (High Peak)


Miscampbell, Norman
Rodgers, Sir John (Sevenoaks)
Walker, Peter (Worcester)


Mitchell, David
Roots, William
Walters, Dennis


Monro, Hector
Royle, Anthony
Ward, Dame Irene


More, Jasper
Russell, Sir Ronald
Weatherill, Bernard


Morgan, W. G.
St. John-Stevas, Norman
Wells, John (Maidstone)


Morrison, Charles (Devizes)
Scott-Hopkins, James
Whitelaw, William


Mott-Radclyffe, Sir Charles
Sharples, Richard
Wiliams, Sir Rolf Dudley (Exeter)


Munro-Lucas-Tooth, Sir Hugh
Shepherd, William
Wills, Sir Gerald (Bridgwater)


Murton, Oscar
Sinclair St. George
Wilson, Geoffrey (Truro)


Neave, Airey
Smith, Dudley (Br'ntf'd &amp; Chiswick)
Wise, A. R.


Nicholls, Sir Harmar
Smyth, Rt. Hn. Brig. Sir John
Wolrige-Gordon, Patrick


Nicholson, Sir Godfrey
Spearman, Sir Alexander
Wood, Rt. Hn. Richard


Noble, Rt. Hn. Michael
Stainton, Keith
Woodhouse, Hon. Christopher


Onslow, Cranley
Stanley, Hn. Richard
Woodnutt, Mark


Orr, Capt. L. P. S.
Steel, David (Roxburgh)
Yates, William (The Wrekin)


Orr-Ewing, Sir Ian
Stodart, Anthony
Younger, Hn. George


Osborn, John (Hallam)




Osborne, Sir Cyril (Louth)
Stoddart-Scott, Col. Sir Malcolm
TELLERS FOR THE NOES:


Page, John (Harrow, W.)
Studholme, Sir Henry
Mr. Martin McLaren and


Page, R. Graham (Crosby)
Talbot, John E.
Mr. Ian MacArthur.


Pearson, Sir Frank (Clitheroe)
Taylor, Sir Charles (Eastbourne)

The Temporary Chairman (Sir Herbert Butcher): Ayes to the right, 281, Noes to the left, 281.
The responsibility falls upon me of giving a casting vote, which I do for the retention of the words in the Bill, and I accordingly vote with the Ayes.

Mr. Heath: I beg to move,
That the Chairman report Progress and ask leave to sit again.
I agree that this is a somewhat earlier hour than that to which the Committee is used to concluding its business, but we are now faced with the most extraordinary situation. It is quite apparent that the Government are no longer in a position to carry on with their business. Not only have they been quite unable to answer the arguments put forward in the Committee, but they have been unable to muster a majority to support them. We must, therefore, ask whoever is the senior Minister now on the Front Bench—

Hon. Members: Send for the Prime Minister.

The Temporary Chairman: Order.

Mr. Heath: It is evident to the Committee that the Prime Minister is not present. It has, of course, been evident to the Committee throughout its sittings on the Bill that the Prime Minister has never been present. Perhaps, therefore, the Leader of the House would like time to send for the Prime Minister, wherever he may be. In any case, we must call upon the Leader of the House or the Chancellor of the Exchequer to say whether the Government are now prepared to abandon at least this part of the Bill.
I put it to the Leader of the House and the Chancellor of the Exchequer that they should state their intentions. My right hon. and hon. Friends and myself firmly believe that now has come the time to report Progress because the Government are no longer in a position to carry on.

Mr. Callaghan: It is Derby day [HON. MEMBERS: "Oh."] If I had not known, I would have thought I was watching a performance of a pack of hounds trying to tear someone to pieces.
We have had a Motion to report Progress. There is clearly no reason why we should do so. The next Amendment on the Notice Paper is one that has been put down by the Opposition to reduce the tax on dividends. I think it would be for the benefit of the country, and certainly for the benefit of my hon. Friends,

for the Opposition to declare themselves on this subject of reducing the tax on dividends.
It ought to be made known that from their point of view, at a time when we are asking the wage earners to restrict their incomes. [Interruption.]

The Temporary Chairman: Order.

Mr. Callaghan: I think it right that the country should know that the Opposition are keen to reduce the tax on dividends—[Interruption.]—when what we ask the country for is restraint on incomes.

Hon. Members: Resign.

Mr. Callaghan: It therefore seems to me very appropriate—

Mr. Norman Cole: On a point of order. Are we in order in discussing the next Amendment when we have a Motion to report Progress?

The Temporary Chairman: When I think that the Chancellor of the Exchequer is out of order I will say so.

Mr. Callaghan: I am not discussing the next Amendment, I am saying that I think there is plenty of time ahead of us and that we ought to go on and discuss other Amendments so that we can hear what the view of the Opposition is and they can try their luck again and see whether they are as successful next time as this time. As far as I am concerned, I would recommend to the Committee that we should continue the debate from the point we have now reached.

Mr. Hirst: I cannot really accept the Chancellor's explanation as adequate. My right hon. Friend the Member for Bexley (Mr. Heath) is quite right. Many hon. Members have not been here. I have been here six and a half hours out of seven and I know perfectly well. [Interruption.]

The Chairman: It is very difficult for the Chair to hear the hon. Member who is addressing the Chair.

Mr. Hirst: I am a relatively old Member of the House and I shall say my little speech regardless of interruptions. I


have said that my right hon. Friend the Member for Bexley is quite right. We have not had a satisfactory answer to this debate. It had been obvious that the Government have not understood and I think that it is appropriate and right, at this stage of affairs, that in view of the crisis that has overcome the Committee, the Prime Minister should be here to deal with this situation.
We are not likely to make much progress tonight at all unless we hear from the head of the Government some explanation of what he intends to do to get his party into line and control the business of the Committee. We are quite right to press this and I hope that we shall do so very strongly.

Sir K. Pickthorn: Dr. King—[Interruption.]

The Chairman: Order. It is difficult for the Chair to call an hon. Member if other hon. Members make a noise.

Sir K. Pickthorn: I wish to say only two things. [Interruption.] Right hon. Members opposite who have not had much to say, or who have not had anything to say that was worth saying, might

keep quiet now and help that bare half of the Committee which is prepared to listen to them to listen to me.

I have two things to say. The Chancellor of the Exchequer has argued against the Motion on the ground that there is no reason for it. The reason is that Her Majesty's present advisers have not a majority in the Committee. It might be argued to be an insufficient reason, but to say that it is no reason at all is absurd. Surely, in these circumstances, the Committee should do nothing without having heard the advice of the First Lord of the Treasury, who is in the Committee, or was a few minutes ago—[Interruption.] Damn George Brown!

Hon. Members: Oh!

The Chairman: Order. I did not hear what the right hon. Gentleman said, but I suspect that it was out of order.

Sir K. Pickthorn: As always, Dr. King, you are perfectly right. I should not have used those words. What words would you suggest?

Question put:—

The Committee divided: Ayes 279, Noes 284.

Division No. 161.]
AYES
[10.58 p.m.


Agnew, Commander Sir Peter
Brooke, Rt. Hn. Henry
d'Avigdor-Goldsmid, Sir Henry


Alison, Michael (Barkston Ash)
Brown, Sir Edward (Bath)
Dean, Paul


Allan, Robert (Paddington, S.)
Bruce-Cardyne, J.
Deedes, Rt. Hn. W. F.


Allason, James (Hemel Hempstead)
Bryan, Paul
Digby, Simon Wingfield


Amery, Rt. Hn. Julian
Buchanan-Smith, Alick
Doughty, Charles


Anstruther-Gray, Rt. Hn. Sir W.
Buck, Antony
Douglas-Home, Rt. Hn. Sir Alec


Astor, John
Bullus, Sir Eric
Drayson, G. B.


Atkins, Humphrey
Burden, F. A.
du Cann, Rt. Hn. Edward


Awdry, Daniel
Buxton, Ronald
Eden, Sir John


Baker, W. H. K.
Campbell, Gordon
Elliot, Capt. Walter (Carshalton)


Balniel, Lord
Carlisle, Mark
Elliott, R. W.(N'c'tle-upon-Tyne,N.)


Barber, Rt. Hn. Anthony
Carr, Rt. Hn. Robert
Eyre, Reginald


Barlow, Sir John
Cary, Sir Robert
Farr, John


Batsford, Brian
Chataway, Christopher
Fell, Anthony


Beamish, Col. Sir Tufton
Chichester-Clark, R.
Fisher, Nigel


Bennett, Sir Frederic (Torquay)
Clark, Henry (Antrim, N.)
Fletcher-Cooke, Charles (Darwen)


Bennett, Dr. Reginald (Got &amp; Fhm)
Clark, William (Nottingham, S.)
Fletcher-Cooke, Sir John (S'pton)


Berkeley, Humphry
Cole, Norman
Foster, Sir John


Berry, Hn. Anthony
Cooke, Robert
Fraser,Rt.Hn.Hugh(St'fford &amp; Stone)


Bessell, Peter
Cooper, A. E.
Fraser, Ian (Plymouth, Sutton)


Biffen, John
Cooper-Key, Sir Neill
Gammans, Lady


Biggs-Davison, John
Cordle, John
Gardner, Edward


Bingham, R. M.
Corfield, F. V.
Gibson-Watt, David


Birch, Rt. Hn. Nigel
Costain, A. P.
Giles, Rear-Admiral Morgan


Black, Sir Cyril
Courtney, Cdr. Anthony
Gilmour, Ian (Norfolk, Central)


Blaker, Peter
Craddock, Sir Beresford (Spelthorne)
Gilmour, Sir John (East Fife)


Bottom, Hn. Clive
Crawley, Aidan
Clover, Sir Douglas


Bowen, Roderic (Cardigan)
Crosthwaite-Eyre, Col. Sir Oliver
Glyn, Sir Richard


Box, Donald
Crowder, F. P.
Goodhart, Philip


Boyd-Carpenter, Rt. Hn. J.
Cunningham, Sir Knox
Goodhew, Victor


Boyle, Rt. Hn. Sir Edward
Curran, Charles
Gower, Raymond


Braine, Bernard
Currie, G. B. H.
Grant, Anthony


Brewis, John
Dalkeith, Earl of
Grant-Ferris, R.


Brinton, Sir Tatton
Dance, James
Gresham Cooke, R.


Bromley-Davenport.Lt.-Col.SlrWalter
Davies, Dr. Wyndham (Perry Barr)
Grieve, Percy




Griffiths, Eldon (Bury St. Edmunds)
Lloyd,Rt.Hn.Geoffrey (Sut'nC'dfield)
Renton, Rt. Hn. Sir David


Griffiths, Peter (Smethwick)
Lloyd, Ian (P'tsm'th, Langstone)
Ridsdale, Julian


Grimond, Rt. Hn. J.
Lloyd, Rt. Hn. Selwyn (Wirral)
Roberts, Sir Peter (Heeley)


Gurden, Harold
Longden, Gilbert
Robson Brown, Sir William


Hall, John (Wycombe)
Loveys, Walter H.
Rodgers, Sir John (Sevenoaks)


Hall-Davis, A. G. F.
Lubbock, Eric
Roots, William


Hamilton, Marquess of (Fermanagh)
Lucas, Sir Jocelyn
Royle, Anthony


Hamilton, M. (Salisbury)
McAdden, Sir Stephen
Russell, Sir Ronald


Harris, Frederic (Croydon, N.W.)
Mackenzie, Alasdair (Ross&amp;Crom'ty)
St. John-Stevas, Norman


Harris, Reader (Heston)
Maclean, Sir Fitzroy
Scott-Hopkins, James


Harrison, Brian (Maldon)
Macleod, Rt. Hn. Iain
Sharples, Richard


Harrison, Col. Sir Harwood (Eye)
McMaster, Stanley
Shepherd, William


Harvey, Sir Arthur Vere (Macclesf'd)
McNair-Wilson, Patrick
Sinclair, Sir George


Harvey, John (Walthamstow, E.)
Maginnis, John E.
Smith, Dudley (Br'ntf'd &amp; Chiswick)


Harvie Anderson, Miss
Maitland, Sir John
Smyth, Rt. Hn. Brig. Sir John


Hastings, Stephen
Marples, Rt. Hn. Ernest
Spearman, Sir Alexander


Hawkins, Paul
Marten, Neil
Stainton, Keith


Hay, John
Maude, Angus
Stanley, Hn. Richard


Heald, Rt. Hn. Sir Lionel
Mawby, Ray
Steel, David (Roxburgh)


Heath, Rt. Hn. Edward
Maxwell-Hyslop, R. J.
Stodart, Anthony


Hendry, Forbes
Maydon, Lt.-Cmdr. S. L. C.
Stoddart-Scott, Col. Sir Malcolm


Higgins, Terence L.
Meyer, Sir Anthony
Studholme, Sir Henry


Hiley, Joseph
Mills, Peter (Torrington)
Talbot, John E.


Hill, J. E. B. (S. Norfolk)
Mills, Stratton (Belfast, N.)
Taylor, Sir Charles (Eastbourne)


Hirst, Geoffrey
Miscampbell, Norman
Taylor, Edward M. (G'gow,Cathcart)


Hobson, Rt. Hn. Sir John
Mitchell, David
Taylor, Frank (Moss Side)


Hogg, Rt. Hn. Quintin
Monro, Hector
Teeling, Sir William


Hooson, H. E.
More, Jasper
Temple, John M.


Hopkins, Alan
Morgan, W. G.
Thatcher, Mrs. Margaret


Hordern, Peter
Morrison, Charles (Devizes)
Thomas, Sir Leslie (Canterbury)


Hornby, Richard
Mott-Radclyffe, Sir Charles
Thomas, Rt. Hn. Peter (Conway)


Hornsby-Smith, Rt. Hn. Dame P.
Munro-Lucas-Tooth, Sir Hugh
Thompson, Sir Richard (Croydon, S.)


Howard, Hn. G. R. (St. Ives)
Murton, Oscar
Thorneycroft, Rt. Hn. Peter


Howe, Geoffrey (Bebington)
Neave, Airey
Tiley, Arthur (Bradford, W.)


Hunt, John (Bromley)
Nicholls, Sir Harmar
Tilney, John (Wavertree)


Hutchison, Michael Clark
Nicholson, Sir Godfrey
Turton, Rt. Hn. R. H.


Iremonger, T. L.
Noble, Rt. Hn. Michael
Tweedsmuir, Lady


Irvine, Bryant Godman (Rye)
Onslow, Cranley
van Straubenzee, W. R.


Jenkin, Patrick (Woodford)
Orr, Capt. L. P. S.
Vickers, Dame Joan


Jennings, J. C.
Orr-Ewing, Sir Ian
Walder, David (High Peak)


Johnson Smith, G. (East Grinstead)
Osborn, John (Hallam)
Walker, Peter (Worcester)


Johnston, Russell (Inverness)
Osborne, Sir Cyril (Louth)
Walters, Dennis


Jones, Arthur (Northants, S.)
Page, John (Harrow, W.)
Ward, Dame Irene


Jopling, Michael
Page, R. Graham (Crosby)
Weatherill, Bernard


Joseph, Rt. Hn. Sir Keith
Pearson, Sir Frank (Clitheroe)
Wells, John (Maidstone)


Kaberry, Sir Donald
Percival, Ian
Whitelaw, William


Kerby, Capt. Henry
Peyton, John
Williams, Sir Rolf Dudley (Exeter)


Kerr, Sir Hamilton (Cambridge)
Pickthorn, Rt. Hn. sir Kenneth
Wills, Sir Gerald (Bridgwater)


Kilfedder, James A.
Pike, Miss Mervyn
Wilson, Geoffrey (Truro)


Kimball, Marcus
Pitt, Dame Edith
Wise, A. R.


King, Evelyn (Dorset, S.)
Powell, Rt. Hn. J. Enoch
Wolrige-Gordon, Patrick


Kirk, Peter
Price, David (Eastleigh)
Wood, Rt. Hn. Richard


Lagden, Godfrey
Prior, J. M. L.
Woodhouse, Hn. Christopher


Lambton, viscount
Pym, Francis
Woodnutt, Mark


Lancaster, Col. C. G.
Quennell, Miss J. M.
Yates, William (The Wrekin)


Langford-Holt, Sir John
Ramsden, Rt. Hn. James
Younger, Hn. George


Legge-Bourke, Sir Harry
Rawlinson, Rt. Hn. Sir Peter



Lewis, Kenneth (Rutland)
Redmayne, Rt. Hn. Sir Martin
TELLERS FOR THE AYES:


Litchfield, Capt. John
Rees-Davies, W. R.
Mr. Martin McLaren and




Mr. Ian MacArthur.




NOES


Abse, Leo
Bottomley, Rt. Hn. Arthur
Cousins, Rt. Hn. Frank


Albu, Austen
Bowden, Rt. Hn. H. W. (Leics S.W.)
Craddock, George (Bradford, S.)


Allaun, Frank (Salford, E.)
Boyden, James
Crawshaw, Richard


Alldritt, Walter
Braddock, Mrs. E. M.
Cronin, John


Allen, Scholefield (Crewe)
Bradley, Tom
Crosland, Rt. Hn. Anthony


Armstrong, Ernest
Bray, Dr. Jeremy
Crossman, Rt. Hn. R. H. S.


Atkinson, Norman
Broughton, Dr. A. D. D.
Cullen, Mrs. Alice


Bacon, Miss Alice
Brown, Rt. Hn. George (Belper)
Dalyell, Tam


Bagier, Gordon A. T.
Brown, Hugh D. (Glasgow, Provan)
Darling, George


Barnett, Joel
Buchan, Norman (Renfrewshire, W.)
Davies, G. Elfed (Rhondda, E.)


Baxter, William
Buchanan, Richard
Davies, Harold (Leek)


Beaney, Alan
Butler, Herbert (Hackney, C.)
Davies, Ifor (Gower)


Bence, Cyril
Butler, Mrs. Joyce (Wood Green)
Davies, S. O. (Merthyr)


Benn, Rt. Hn. Anthony Wedgwood
Callaghan, Rt. Hn. James
Delargy, Hugh


Bennett, J. (Glasgow, Bridgeton)
Carmichael, Neil
Dell, Edmund


Binns, John
Carter-Jones, Lewis
Dempsey, James


Bishop, E. S.
Castle, Rt. Hn. Barbara
Diamond, John


Blackburn, F.
Chapman, Donald
Dodds, Norman


Blenkinsop, Arthur
Coleman, Donald
Doig, Peter


Boardman, H.
Conlan, Bernard
Donnelly, Desmond


Boston, T. G.
Corbet, Mrs. Freda
Driberg, Tom







Duffy, Dr. A. E. P.
Kenyon, Clifford
Price, J. T. (Westhoughton)


Dunn, James A.
Kerr, Mrs. Anne (R'ter &amp; Chatham)
Probert, Arthur


Dunnett, Jack
Kerr, Dr. David (W'worth, Central)
Pursey, Cmdr. Harry


Edwards, Rt. Hn. Ness (Caerphilly)
Lawson, George
Randall, Harry


English, Michael
Leadbitter, Ted
Rankin, John


Ennals, David
Ledger, Ron
Redhead, Edward


Ensor, David
Lee, Rt. Hn. Frederick (Newton)
Rees, Merlyn


Evans, Albert (Islington, S.W.)
Lee, Miss Jennie (Cannock)
Reynolds, G. W.


Evans, Ioan (Birmingham, Yardley)
Lever, Harold (Cheetham)
Rhodes, Geoffrey


Fernyhough, E.
Lewis, Arthur (West Ham, N.)
Richard, Ivor


Finch, Harold (Bedwellty)
Lewis, Ron (Carlisle)
Roberts, Albert (Normanton)


Fitch, Alan (Wigan)
Lipton, Marcus
Roberts, Goronwy (Caernarvon)


Fletcher, Sir Eric (Islington, E.)
Lomas, Kenneth
Robertson, John (Paisley)


Fletcher, Ted (Darlington)
Loughlin, Charles
Robinson, Rt. Hn.K.(St. Pancras, N.)


Fletcher, Raymond (Ilkeston)
Mabon, Dr. J. Dickson
Rodgers, William (Stockton)


Floud, Bernard
McCann, J.
Rogers, George (Kensington, N.)


Foley, Maurice
MacColl, James
Rose, Paul B.


Foot, Sir Dingle (Ipswich)
MacDermot, Niall
Ross, Rt. Hn. William


Foot, Michael (Ebbw Vale)
McGuire, Michael
Rowland, Christopher


Ford, Ben
McInnes, James
Sheldon, Robert


Fraser, Rt. Hn. Tom (Hamilton)
McKay, Mrs. Margaret
Shinwell, Rt. Hn. E.


Freeson, Reginald
Mackenzie, Gregor (Rutherglen)
Shore, Peter (Stepney)


Galpern, Sir Myer
Mackie, John (Enfield, E.)
Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)


Garrett, W. E.
McLeavy, Frank
Silkin, John (Deptford)


Garrow, A.
MacPherson, Malcolm
Silkin, S. C. (Camberwell, Dulwich)


Ginsburg, David
Mahon, Peter (Preston, S.)
Silverman, Julius (Aston)


Gourlay, Harry
Mahon, Simon (Bootle)
Skeffington, Arthur


Greenwood, Rt. Hn. Anthony
Mallalieu, J.P.W.(Huddersfield,E.)
Slater, Joseph (Sedgefield)


Gregory, Arnold
Manuel, Archie
Small, William


Grey, Charles
Mapp, Charles
Smith, Ellis (Stoke, S.)


Griffiths, David (Rother Valley)
Mason, Roy
Solomons, Henry


Griffiths, Rt. Hn. James (Llanelly)
Mayhew, Christopher
Soskice, Rt. Hn. Sir Frank


Griffiths, Will (M'chester, Exchange)
Mellish, Robert
Stonehouse, John


Gunter, Rt. Hn. R. J.
Mendelson, J. J.
Stones, William


Hale, Leslie
Mikardo, Ian
Strauss, Rt. Hn. G. R. (Vauxhall)


Hamilton, James (Bothwell)
Millan, Bruce
Summerskill, Hn. Dr. Shirley


Hamilton, William (West Fife)
Miller, Dr. M. S.
Swain, Thomas


Hamling, William (Woolwich, W.)
Milne, Edward (Blyth)
Swingler, Stephen


Harrison, Walter (Wakefield)
Molloy, William
Symonds, J. B.


Hart, Mrs. Judith
Monslow, Walter
Taylor, Bernard (Mansfield)


Hattersley, Roy
Morris, Alfred (Wythenshawe)
Thomas, George (Cardiff, W.)


Hazell, Bert
Morris, Charles (Openshaw)
Thomson, George (Dundee, E.)


Healey, Rt. Hn. Denis
Morris, John (Aberavon)
Thornton, Ernest


Henderson, Rt. Hn. Arthur
Mulley,Rt.Hn. Frederick(SheffieldPk)
Tinn, James


Herbison, Rt. Hn. Margaret
Murray, Albert
Tomney, Frank


Hill, J. (Midlothian)
Neal, Harold
Tuck, Raphael


Hobden, Dennis (Brighton, K'town.)
Newens, Stan
Urwin, T. W.


Holman, Percy
Noel-Baker, Francis (Swindon)
Varley, Eric G.


Horner, John
Noel-Baker,Rt.Hn.Philip(Derby,S.)
Wainwright, Edwin


Houghton, Rt. Hn. Douglas
Norwood, Christopher
Walden, Brian (All Saints)


Howarth, Harry (Wellingborough)
Oakes, Gordon
Walker, Harold (Doncaster)


Howarth, Robert L. (Bolton, E.)
Ogden, Eric
Wallace, George


Howell, Denis (Small Heath)
O'Malley, Brian
Watkins, Tudor


Howie, W.
Oram, Albert E. (E. Ham, S.)
Weitzman, David


Hoy, James
Orbach, Maurice
Wells, William (Walsall, N.)


Hughes, Cledwyn (Anglesey)
Orme, Stanley
White, Mrs. Eirene


Hughes, Emrys (S. Ayrshire)
Oswald, Thomas
Whitlock, William


Hughes, Hector (Aberdeen, N.)
Owen, Will
Wigg, Rt. Hn. George


Hunter, Adam (Dunfermline)
Padley, Walter
Wilkins, W. A.


Hunter, A. E. (Feltham)
Page, Derek (King's Lynn)
Willey, Rt. Hn. Frederick


Irvine, A. J. (Edge Hill)
Paget, R. T.
Williams, Alan (Swansea, W.)


Irving, Sydney (Dartford)
Palmer, Arthur
Williams, Clifford (Abertillery)


Jackson, Colin
Pannell, Rt. Hn. Charles
Williams, Mrs. Shirley (Hitchin)


Jay, Rt. Hn. Douglas
Pargiter, G. A.
Williams, W. T. (Warrington)


Jeger, George (Goole)
Park, Trevor (Derbyshire, S.E.)
Willis, George (Edinburgh, E.)


Jeger,Mrs.Lena(Hlb'n&amp;St.P'cras,S.)
Parker, John
Wilson, Rt. Hn. Harold (Huyton)


Jenkins, Hugh (Putney)
Parkin, B. T.
Wilson, William (Coventry, S.)


Jenkins, Rt. Hn. Roy (Stechford)
Pavitt, Laurence
Winterbottom, R. E.


Johnson, Carol (Lewisham, S.)
Pearson, Arthur (Pontypridd)
Woodburn, Rt. Hn. A.


Johnson,James(K'ston-on-Hull,W.)
Peart, Rt. Hn. Fred
Woof, Robert


Jones, Dan (Burnley)
Pentland, Norman
Wyatt, Woodrow


Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)
Perry, Ernest G.
Zilliacus, K.


Jones, J. Idwal (Wrexham)
Popplewell, Ernest



Jones, T. W. (Merioneth)
Prentice, R. E.
TELLERS FOR THE NOES:


Kelley, Richard

Mrs. Harriet Slater and




Mr. Joseph Harper.

11.15 p.m.

Mr. Barber: I beg to move Amendment No. 273, in page 50, line 5, to leave out from "charged" to "rate" in line 6 and to insert:

a tax, to be called corporation tax on the undistributed profits of companies at such rate as Parliament may hereafter determine, and on the distributed profits of companies at such lower rate, not exceeding two fifths of the first mentioned".


We have now an incredible situation. While we may or may not—[Interruption.]

The Chairman: Order. Will hon. Gentlemen who are leaving the Chambe do so quietly?

Mr. Barber: While we may or may not be right to continue to consider the merits of the Corporation Tax we all do so now in the knowledge that long before this tax will ever come into co-operation the Chancellor and his right hon. Friends will be on this side of the Committee. However, Dr. King, I have, like everyone else, to keep within the rules of order, so I must confine my remarks to this Amendment.
This is the first of a number of major Amendments which are concerned with the particular form of the Corporation Tax, which the Chancellor seeks to impose. Some of the arguments have already been deployed and I shall do my best not to prolong the proceedings. The Committee will realise this is one of the most important Amendments which we have put down on this side of the Committee. Its purpose can be simply stated. It is to avoid the discrimination against distributed profits which is inherent in the system which the Chancellor has chosen.
If one takes the rate of Corporation Tax as 40 per cent., the Chancellor proposes in future to charge tax on undistributed profits at 40 per cent. and distributed profits at 40 per cent. and thereafter at the standard rate, which is at present 41¼ per cent., making a composite rate of 63¾ per cent. We are not wedded to the particular form of righting the situation proposed in this Amendment, nor do we say that we have necessarily got the extent of the proportionate reductions precisely right. What we do say is that if the country is to be saddled with a Corporation Tax, and companies are to be obliged to deduct tax at the standard rate and to account for it to the Inland Revenue, then it is essential to have a lower rate of Corporation Tax on distributed profits than to retained profits.
Before I get down to the details, let me state in broad terms our objections to the Chancellor's system of Corporation Tax which we seek to remedy by the Amendment. In the first place—and I make no apology for saying this quite

bluntly—it is inequitable to the shareholder who is to be burdened with an excessive degree of double taxation. Secondly, it is bound to encourage—some may think that this is a more important point—the inefficient use of scarce capital resources, because the inevitable consequences will be to divert those resources away from uses where would most contribute to prosperity. Thirdly, the Chancellor's system involves a complete reversal of the trend of company taxation as it is evolving in those countries with which we have to compete in the export markets. As my right hon. Friend the Member for Bexley (Mr. Heath) said, those countries are now moving to avoid the very situation which the Chancellor seeks to create in this country.
What is the basis of the right hon. Gentleman's proposed Corporation Tax, and his method of taxing distributions, in particular? It is, if I may say so with no disrespect, "Diamond's Delight". It is that a company is a legal entity, wholly distinct and separate from the shareholders, and, therefore, the right hon. Gentleman says, quite logically it follows that there is no element of double taxation.
But if the hon. Gentleman's logic is right, if, in fact, a company is an entity quite separate in reality as well as in law from the shareholders, surely the payment of dividends should rank as a charge in the computation of the profits for Corporation Tax purposes. Neither he nor I, nor anyone else in the Committee, would suggest that. The hon. Gentleman assumes that the identity of the company and its shareholders are the same when it suits his purpose, and equally he assumes that they are quite distinct when he wants to justify another aspect of the tax.
Of course it is true—I will grant him this—that in law a company is a legal persona quite separate and distinct from the shareholders.

Mr. Diamond: Hear, hear.

Mr. Barber: The hon. Gentleman says, "Hear, hear", but this is no more than a legal fiction which is convenient for many of the purposes of a highly developed society. The underlying reality with which the hon. Gentleman should be


concerned is that a company, although in law a distinct entity, has in fact no interest in its business, in its assets, in its profits, distinct from the interest of its members. If the tax ever becomes operative, people who choose the company structure for their trading activities will be seriously overburdened in comparison with other taxpayers. This point has been made already in the general debate earlier and I do not propose to elaborate it. I only pose the question: why should risk capital, which is the lifeblood of our economy, be singled out to be penalised?
I will deal in a moment with the economic consequences of the Chancellor's, in my view misguided, incentive to increase retentions, but let me, first, illustrate the consequences in terms of hard cash. Anyone, I should have thought, with a modicum of business experience knows that in the case of most public companies, and certainly in a growth industry, it is of the highest importance that dividends should not fall, and the reason is that one must always have in mind the need as the business expands to go to the market for additional capital. The dividend record of a company is, therefore, a highly important factor in the eyes of the investing public. It follows that many up-and-coming companies will rightly regard the maintenance of the dividend as a matter of prime importance.
We ought to consider for a moment the comparative effects of the existing system of taxation and the proposals in the Bill. Assume that a company has annual profits of £1 million before tax and an established dividend distribution of £600,000 gross. At this time of the night, I shall not weary the Committee with the details, but the conclusion to which one comes is that, under the present system, with Profits Tax at 15 per cent. and Income Tax at 8s. 3d. in the £, £85,000 would be available for plough-back. Under the Corporation Tax of 40 per cent., that company would have nothing at all left for plough-back.
The higher the ratio of dividend to profit the greater would be the disparity, and conversely. The 60 per cent. ratio is by no means unreasonably high. After all, investors risk their money for the sake of yield, and it is right to infer, there-

fore, that in many instances, and probably in the case of most of the largest companies, the effect of the Corporation Tax would be to reduce the amount ploughed back.
Consider not the case which I have just put to the Chief Secretary, but the case at which the Chancellor is aiming, the case in which, because of the conjoined effect of the Corporation Tax and Income Tax, the company cuts its dividends and increases its retentions, which is what, in many cases, the Chief Secretary would like to see. It is nonsense to pretend that by increasing retentions we are likely to see a more efficient use of our capital resources than in the normal working of the market. I will tell the hon. Gentleman what I think he will achieve. I believe that, if this proposal goes through, many of the less dynamic companies will certainly be encouraged to increase their retentions, and I have not the slightest doubt that this will lead to an expansion of less profitable investment.
The fallacy in the Chancellor's reasoning is to concentrate on the quantity of investment rather than on the quality. Even if one considers only the quantity of investment, the facts simply do not support the right hon. Gentleman's reasoning. When the Chief Secretary spoke in the Budget debate, he tried to show that, after the change from dual rates of Profits Tax to a single rate in 1958, the pattern of financing was virtually unchanged. He repeated the same point today. I was surprised at what he said. I notice that Mr. Harold Wincott, in the Financial Times, reached the conclusion that the evidence available to him did not support the hon. Gentleman's conclusion.
I have made my own inquiries, and with the best will in the world—I would not put forward this view lightly—I fail to see how the facts support the Chancellor. Let me give him the facts which I have been able to ascertain. They are from highly respectable sources, which I can give to the right hon. Gentleman if he wishes them. As far as I understand it, the position is that from 1954 to 1958 the total sources of capital funds amounted to £7,011 million, out of which issues of ordinary shares amounted to £787 million, or 11·2 per cent. During


the years 1959 to 1963, the total sources of capital funds amounted to £10,468 million, out of which the issues of ordinary shares accounted for £1,662 million or 15·9 per cent. That was 11·2 per cent. in the first four year period and 15·9 in the second.
No doubt the hon. Gentleman will wish to consider these figures, and in due course he will correct me if he thinks that I ant wrong, but in view of the great interest in what he said and the importance of the facts he gave in relation to the argument which he was putting before the Committee, I think it right to give these facts, so that the hon. Gentleman can correct me if I am wrong.

Mr. Diamond: I will ask only one question of the right hon. Gentleman. I shall, of course, be glad of the opportunity to consider the figures. Do his figures of shares issued mean shares issued for cash or shares issued for cash and shares in other companies?

Mr. Barber: I have with me a detailed note of the meaning of the terms I have used—total dividends distributed, total additions to reserves, issues of ordinary shares, and so on—and if the Chief Secretary would like I will send them to him. I would be glad to know whether I am right or whether there is some difference in the coverage. If I am right, then the converse of the Government's case has been proved. The consequences of the Government's proposals can be simply stated. They will favour and protect the inefficient and inhibit the free flow of capital to those projects where it can be most effectively used.
I come to the most extraordinary claim of all to be made by the Chancellor in favour of the tax. The right hon. Gentleman is claiming that it will be for the benefit of the British economy. In his Budget speech he said:
By separating formally the two taxes, namely, the tax on corporations and the tax on individuals, we shall be bringing the tax system of the United Kingdom into line with reality and adopting what has become the general practice throughout the world".—[OFFICIAL REPORT, 6th April, 1965; Vol. 710. c. 254.]
I do not propose to go into details, after the long discussion we have had today, but if the Chancellor really believes what he said in his Budget speech—and one can only assume that he does—then,

frankly, he will believe anything. It is incredible and alarming to think that when the right hon. Gentleman made his Budget speech he thought that the principles of his Corporation Tax tallied with those of our principal competitors. Does he not know that few countries with a corporation tax have full double taxation of dividends on the lines he proposes?
Before getting to the Amendment, the right hon. Gentleman, in his observations in opposing the Motion to report Progress, made some rather disparaging remarks about dividends. What he did not tell the Committee was that there are virtually no other countries with a corporation tax which proposes to do what he proposes, which is to impose full double taxation on dividends. Of the two countries which do, the United States has a generally low burden of personal taxation, which makes all the difference, and France, as is well known, has a highly inefficient capital market.
As for the Common Market countries, they are now moving to the very situation which the Chancellor seeks to abandon. While the Prime Minister trips from one European capital to another making overtures about bridging the gulf between E.F.T.A. and the E.E.C., the Chancellor is quietly moving in the other direction.
I will read two passages from the Report of the Fiscal and Financial Committee of the E.E.C.—the so-called Neumark Report—which are of great importance to anyone who wishes to see closer co-operation between the Common Market countries and ourselves. I understand, from what the Prime Minister and others have said, particularly at Question Time, that the Government wish, even if they cannot join the Treaty of Rome on suitable and favourable terms, in as many directions as possible, to move closer to Europe.
The first passage stated:
The structure of the rate"—
that is, the Corporation Tax rate—
should, according to the opinion of the Fiscal and Financial Committee, be uniform in all the Member countries and it is proposed that for practical reasons, the tax be varied in such a way … that the part of the profits retained for self-financing be taxed more heavily than that which is distributed".
I can properly leave out two paragraphs. The Report continued:
The majority of members of the Fiscal and Financial Committee consider that the


company tax affecting the distributed part of the profits in the form of dividends should represent about half the tax applicable to undistributed profits and by no means less than 15 per cent.".
11.30 p.m.
What the Committee is in this respect recommending to the other members of the E.E.C. is, broadly speaking, the German system, which imposes corporation tax on undistributed profits at 51 per cent. and on distributed profits at 15 per cent. So if the Chancellor really wants to bring our taxation into line with our major competitors, as he purported to be doing on Budget day, he must accept a modification of the tax on the lines of the Amendment.

Mr. Harold Lever: Does the right hon. Gentleman favour some such discriminatory system such as is advocated by the Neumark Report?

Mr. Barber: I most certainly do. At present—this is the real significance of the argument—if we have a Corporation Tax of 40 per cent. on the lines suggested by the Government, it means that undistributed profits will bear tax at the rate of 40 per cent. and distributed profits, because of the interaction of Profits Tax and Income Tax, which has to be deducted and accounted for to the Revenue, will bear an effective rate of 63¾ per cent. In other words, there is a disincentive to distribute, which, I believe, is a bad thing economically for the reasons I have just mentioned.
So, although the particular figures which I have given and the particular form of the Amendment may not be exactly right, what I am suggesting to the hon. Gentleman is that we should move at any rate somewhat nearer to the sort of proposals which are being made for the Common Market countries. The blunt truth, in my view, is that in its present form the Corporation Tax is based on a principle which is unsound, it leads to consequences which are unjust, and in the penalty which it imposes on risk capital it is, I believe, economic folly.

Mr. Patrick Jenkin: I am happy to support the Amendment. Before I go on to the substance of it, I should like to correct the record on one matter. On Second Reading, the Financial Secretary sought to claim that there were many Members on

this side of the Committee who supported a Corporation Tax, and he mentioned my name and drew attention to a pamphlet. I did not write, nor put my name to, the chapter which he mentioned. Furthermore, I put my name to another chapter in which I roundly condemned any idea of a Capital Gains Tax. No doubt the Chief Secretary will convey this to the Financial Secretary.
If the hon. and learned Gentleman will refer to the spring, 1961, issue of Crossbow he will find all my arguments for objecting to a Corporation Tax on the lines we are discussing this evening. The use of my name to support the Chancellor's proposal was very wide of the mark, and I hope that on some future occasion the hon. and learned Gentleman will withdraw what he said.
I support the Amendment for reasons touched on by some speakers earlier. As at present embodied in the Bill, the tax is based on a number of misconceptions about the capital market and the desirability, in particular, of retentions. The remarks that the Chief Secretary made in winding up an earlier debate about drawing a distinction between ploughing back and retentions was nonsense. To a public company other than a close company, the Corporation Tax makes no differentiation at all as to whether the profits are reinvested or merely retained. Therefore, the argument which is directed towards the form in which the tax has been cast in the Bill, against which the Amendment is intended to strike, depends on the validity of the argument as to whether retentions are a good thing.
It is my humble opinion that retentions on the whole are not a good thing. A company which has a desire to expand should be prepared to justify its plans to the market. This was a point touched on by my right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd) earlier today, when he said that a system based on encouraging retention is, in fact, undemocratic. It has been said before, but let hon. Members reflect on what politics are about; they are a matter of power, and one of the things which we on this side of the Committee stand for is not the concentration of power, but a wider dissemination of power. A tax system which tends to concentrate the power of investment decisions


—and those are a very important exercise of power—in the hands of boards of directors, tends also to isolate them from the market as well as from their own shareholders.
It is fundamentally undemocratic and the sooner that right hon. and hon. Members opposite realise the fact, the better. There is another argument. Apart from being undemocratic, it is inefficient. There is no evidence at all that those companies which plough back a larger than average share of their profits are any more efficient.
Then there is the question of growth. The hon. Member for Colne Valley (Mr. Duffy) made a speech in relation to ploughing back, during the course of which he said there was no evidence to suggest that distributions were a good thing. In fact, the hon. Gentleman was entirely wrong. It is absolutely untrue for anyone to suggest what he suggested; I will draw the Chief Secretary's attention to an extremely important article based upon work done at Oxford University, a couple of years ago.
The results were published in November, 1962, by the Oxford University institute of Statistics in an article by Mr. I. M. D. Little, of Nuffield College. Mr. Little analysed the published results of more than 500 major companies, of which the details had appeared in Moody's Index, and if hon. Members care to study the article they would see that his calculations were extremely complex. He employed the most advanced statistical techniques, making use of the university's computer, and so far as I am aware his work has never been challenged by anyone.
It produced some very surprising results. First, in the period at which he was looking, 1951–1959, it was found that the pre-tax earnings of companies rose, in real terms, less than the growth in personal incomes, that is, only 1·3 per cent. per annum, and that, with two-thirds of the equity income ploughed back, the average yield was only 2 per cent. per annum. Mr. Little drew the conclusion that a lot of these ploughed-back earnings were very inefficiently used indeed. His findings shook the stock market, and something which shook the stock market even more was the fact that he found no correlation at all between past

growth and probable future growth. If one's stockbroker says that a company has had good growth over the last five years, that is no indication that it will have a good growth in the following five years. For the purposes of this debate, perhaps the most important conclusion which Mr. Little reached and which he described as a very disturbing conclusion was that there was no correlation between plough-back and growth, that there was no evidence whatever that firms which ploughed back a higher than average proportion of their profits grew any faster than firms with a higher rate of distribution.
I hope that the Chief Secretary is listening to this, because it takes the carpet away from under the feet of the whole case for this form of Corporation Tax. Mr. Little concludes that the results support the view that
institutional or fiscal arrangements which limit dividends are a relatively inefficient method of increasing investment.
The whole case for the Corporation Tax in this form has been that it will encourage retention and that this miracle tax, to use the glowing terms in which the Chief Secretary regards it, would lead to greater efficiency, healthier companies, and so on.
The one comprehensive piece of academic research which would have thrown some light on the validity of this whole proposal, and did, has come to the conclusion that
… institutional or fiscal arrangements which limit dividends are a relatively inefficient method of increasing investment.
I do not know how the Chancellor's advisers could have missed this. Of course, one comes from King's, Cambridge, so perhaps does not read the bulletins of the Oxford Bureau of Statistics, whereas, in Balliol, they have not yet got round to reading the publications of Fellows of Nuffield. Perhaps they will learn. The fact of the matter is that this article and its findings—and no one has seriously challenged them—make a complete nonsense of the whole of the Government's case for this Corporation Tax.
The second point with which I wish briefly to deal is the question of the proportion of new capital which is raised from the market. My right hon. Friend referred to the article by Harold Wincott


which appeared in the Financial Times of 27th April, in which the figures quoted by the Chief Secretary in the Budget debate on 12th April were challenged. The first question which Mr. Wincott put is one to which the Committee is entitled to an answer. What are the sources of the Government's figures? In the last debate the Chief Secretary refined them down to one place of decimals and appeared to feel that that strengthened the validity of his argument.
The Committee is still awaiting any indication of the sources from which the Chief Secretary has derived his figures, whereas, on the other hand, Mr. Wincott—and, I have no doubt, the figures which my right hon. Friend is to send to the Chancellor of the Exchequer—are from sources which are published and acknowledged and impartial, and arrive at entirely different conclusions, namely, that after the law was changed in 1958 a substantially higher proportion of new capital was raised from the market than had been raised in the five years before.
It is a bit disingenuous of the Chief Secretary—and he was caught out by one of my hon. Friends—to link this to equity capital only and to say that it is essential to take into account preference shares and loan capital. He said that loan capital came from banks. Has he never heard of convertible debentures, a favourite way of raising capital? Until a year or two ago, a very large number of new issues on the market were in the form of convertible debentures.
Mr. Wincott shows that whereas, in the previous five years, £1,282 million had been raised from the stock market, in the five years following the change of the Profits Tax pattern in 1958 that figure was nearly doubled to £2,287 million. I am convinced that the Chief Secretary owes it to the Committee to publish the information upon which he arrives at his statistics which are clearly contradicted by respectable statistics from impartial and thoroughly reliable sources.
11.45 p.m.
I support the Amendment because it brings us very much nearer the pattern which Europe is approaching. The logic of the Common Market, of the European Economic Community, drives one inexorably to the conclusion that it is not only

a matter of tariffs and quotas but a matter of institutions as well, and no institution is more important or has a greater influence on business, trade and commerce than taxation.
Inevitably, a Community that wants to establish itself as a single trade unity has to harmonise its institutions as it harmonises its tariffs. The E.E.C. has been driven to that, and I am quite certain that in the future the logic will become even more obvious. If we are to set our faces against this, and adopt a system of taxation which is moving in the opposite direction and not towards the system they are abandoning while they move towards the system that we are abandoning, no one will take seriously our claim to be a European country wanting to play our part in Europe as an integral part of Europe.
Speaking from the back benches, I would say that if we find ourselves, as I am confident we shall, in a short time—within 12 months—in a position to amend this Measure it will be on the lines of this Amendment, based on the Neumark system—

The Temporary Chairman (Mr. Thomas Steele): Order. The hon. Member has been referring a great deal to the discussion that we have already had, but I hope that he and other hon. Members will remember that the last discussion was so conducted as to enable hon. Members to range fairly widely over the question of the Corporation Tax.

Mr. Jenkin: I am much obliged, Mr. Steele. I conclude by saying that I support the Amendment.

Mr. Hirst: This is an extremely important Clause, but the trouble all the way through is that the Government have based their provisions on what I choose to call a muddled version of minority reports of Royal Commissions and committees on taxation. They cannot expect to get things nearly right because, by and large, the muddled versions of amalgamated reports of Royal Commissions and committees are bound to be about as wrong as anything can be. That is where the Government started from, and that is where, as far as I can make out, they finish.
I hope that the Chief Secretary will not once again play his one-man charade


that we all know so very well—we can almost recognise it before he does the first part—and try to fool the Committee into accepting the supposition that no business man must consider any calculation or forward planning except on the basis that in no circumstances whatever will the rate of Corporation Tax be more than 35 per cent. Perhaps the Chief Secretary could give me his attention, because I am addressing him so that I may save time. If the hon. Gentleman wants me to repeat it—

Mr. Diamond: I have heard every word that the hon. Gentleman has said. He does not want me to go back on 40 per cent. and wants the assurance that never, during the next century, will Corporation Tax be more than 35 per cent. I have the point.

Mr. Hirst: The hon. Gentleman will not achieve anything by being silly, if I may say so. I treat him as being intelligent, and possibly he might treat me as the same. Time and time again he has refused to accept any argument unless it has been based on the factual figure of 35 per cent. I hope that he will not do it again.
We have had it from the Chancellor time after time. He did it on his fingers, though we did not find it very easy to follow and we did not know whether he was counting his fingers as four or five. But, unfortunately, 40 per cent. is at least a possibility if the present Government survive long enough, and if companies are to plan and be fair to their shareholders they must take into consideration the possibility that that could happen.
Therefore, my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) is perfectly correct in pointing out that in that event the element of taxation involved under these proposals would be 64½ per cent. I suggest that the figure now is 56¼ per cent.—in other words, 41¼ per cent. plus 15 per cent. If these proposals are accepted, the element of 8s. 3d. would still remain at 41½ per cent. and if Corporation Tax was 40 per cent. that would make the composite rate of 64 per cent. I am not working this out on my fingers, or with a box of matches—which, incidentally, I do not think has been returned, as far as I know.
That is a penal rate and it is absolutely contrary to the whole trend. Hon. Members opposite like to mention instances from other countries, but we shall not hear them tonight because they do not suit their case. One of our hardest "sells" in the E.E.C. is Germany—I have recently been on the Continent—which is changing its system. The Germans are realising the necessity, which we could have told them, of encouraging distribution in order to get mobility of capital in the same way as mobility of labour. The trouble with hon. Members opposite is that they are not modernising their reactions. They really must face facts if we are to compete in business in the future.
Many businesses have grown enormously during the past year or so from distribution policies. Electronic machines are one example. I have no interest in that industry, although I was once a director of a firm concerned with it. That has gone ahead in the last few years on a policy of distribution plus efficiency. Money retained is not always put to the best purpose. A large number of firms are rather sluggish in their management. I have heard hon. Members opposite say this in a different context. The trouble is that they have a packet of arguments for one Bill and a packet of arguments for another. Sometimes firms sit on their money because they have not got the imagination to enable them to use it. It happens right, left and centre until somebody who knows how better to use the capital comes along with a takeover bid.
It would be much better if the profits were distributed and invested in companies which know how to use the money and get export orders. We should not encourage reactionary policies or continue this everlasting hate against dividends as if there was something indecent about them. They are the yardstick of efficiency and growth of firms.

Mr. Harold Lever: The hon. Member says that we hate dividends. The only evidence that he has is that they would be more highly taxed than ploughed-back profits. Are we on this side of the Committee entitled henceforth to refer to the Opposition's hatred of ploughed-back profits on the ground that a right hon. Gentleman opposite has said that he


would tax ploughed-back profits more heavily than dividends?

Mr. Hirst: In the same context, one does not penalise something one loves and, on the other hand, if it is something which one does not love one tends to be discriminatory about it. I am all against encouraging plough-back in that sense.
Is it thought that, by reason of this suggested concession, efficient sound businesses, which are a large proportion of our firms, thank heaven, will distribute this money at a preferential rate just for the love of doing it rather than plough back for an efficient purpose which will be to the ultimate benefit of the shareholders and of the country? The hon. Member for Manchester, Cheetham (Mr. Harold Lever) is able in these matters, but he must not try to bring up these arguments in order to square himself with his earlier speeches.
It is because we want firms to have the capacity to be mobile, fluid and up to date so that we can take our place, as we must, in a competitive world and as an equal partner in Europe that we on this side of the Committee say that we must not pursue policies which by their very nature will make that more difficult.

Mr. Percy Grieve: I support my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) in his moving of the Amendment. Having heard my hon. Friend the Member for Wan-stead and Woodford (Mr. Patrick Jenkin) deal so cogently with the economic aspects of the reasons for the Amendment, I found my objections to the Clause on justice and equity.
The Clause is avowedly designed to penalise distributed profits and subject them to higher taxation in the hands of the shareholders than the other profits of companies. It is founded on a completely fallacious view of the nature of public and private companies. They are not, save by legal fiction, separate entities distinct from their shareholders. Their shareholders created them. Shareholders' money gives them their lifeblood, and their shareholders can put an end to them.
As an hon. Member observed earlier, these compaines have no interest outside

that of their shareholders. The money that flows into these companies is given by the shareholders to create the businesses which have made this country prosperous. What reason is there why these shareholders, drawing their revenues from their enterprises, should be penalised and be subject to a higher rate of tax than persons who draw their revenues from any other kind of enterprise? There is none whatever. This whole Corporation Tax, in its attitude towards the shareholder, is founded on the dislike of hon. Members opposite for the shareholder as a person.
The Chancellor of the Exchequer disclaimed this afternoon any dislike or enmity for the business of this country, but business consists not only of labour and management but also of capital provided by the savings of the people. That capital is entitled to a proper and fair reward without being penalised by methods of this kind which, however disguised and covered up, are a form of penal taxation.
It is said by the Chief Secretary to the Treasury, "Ah, yes. But this will encourage retention". Retention as such is, apparently, desirable. Surely the test of efficiency is best left to the market. It is to the market that companies can say they need money. If those companies are efficient, there will never be a lack of money coming forward. Those companies make a just balance between the need to give their shareholders a proper reward for enterprise and the thrift they have shown in forming the companies and carrying them on in the interest of building up the company from day to day.
I agree that to give management complete power to pile up profits for whatever purpose they desire inside the company is not only inimical to the interests of the shareholders, but to the best interests of trade and enterprise in the country. It is for that reason that I desire to support the Amendment.

12 m.

Mr. Harold Lever: At this late hour, I think that it would be unwise to address the Committee with a detailed examination of the merits and demerits of encouraging by fiscal measures retention of profits. I do, however, wish to point out that the right hon. Member for Altrincham and Sale (Mr. Barber) has now


committed his party to the point of view, from the Front Bench opposite, that a penal rate of tax should be levied against profits that are retained in a company, compared with those paid out by way of dividends.

Mr. Barber: I am sure the hon. Gentleman will realise, on reflection, that I said no such thing. I did say that, if we are to have a Corporation Tax, I favour a system such as the Neumark Committee proposed, with dual rates—a higher rate of tax on undistributed profits than on distributed profits. I said nothing whatsoever about penal rates. If the hon. Gentleman will look at our particular Amendment he will see precisely that is what we have suggested.

Mr. Lever: Perhaps I was unfair in one respect, in using the word "penal". I meant it in its literal sense. I was asking if the hon. Gentleman favoured the notion that you should differentiate between profits retained in a company and profits paid out in dividends. The right hon. Gentleman, without any of the "ifs" and "buts" he now apparently attaches, said explicity that he favours a rate of tax for retained profits greater than that which would be charged on profits paid out in dividends.
In an affectionate way the right hon. Gentleman quoted from the Neumark Report and commended the good sense of what it was proposing. I ask him again: does he favour, as being advantageous for Britain, instead of what the Government are doing, namely, making it dearer in a fiscal way to pay out dividends, a system where higher rate of tax is exacted on retained profits and lower rate charged on dividends?

Mr. Barber: The hon. Gentleman is talking the whole time in terms of tax. He must differentiate between the Corporation Tax and Income Tax. At the moment, the position is that if the Bill is passed into law there will be a 40 per cent. rate of Corporation Tax levied on both distributed and undistributed profits and, in addition to that, after the dividends will have borne the Corporation Tax at the rate of 40 per cent., there will be an additional impost of Income Tax which is at the moment 8s. 3d. in the £. That will have to be accounted for to the Revenue. This is an additional burden

on dividends and this is what we seek to do away with under this Amendment.

Mr. Lever: I have all that. The right hon. Gentleman is well aware that I did not come to the Committee this evening—and I think that most hon. Members have not come to the Committee—unaware that the gist of our proposals is to charge 40 per cent. Corporation fax and thereafter, upon dividends, to exact an Income Tax. Everyone, on both sides, is well aware of this. [Interruption.] Or whatever the rate is to be. Let us stick to the issue.
My question seems to cause the right hon. Gentleman greater difficulty as the evening wears on. When I first asked the question, he did not feel it necessary to hedge by replying to me with a statement of the obvious; he gave me a straight answer, and it is on the record in HANSARD. What I want him either to reaffirm or to withdraw from is his favouring the idea of charging to tax at a lower rate those profits that are distributed compared with those profits which are paid back. He has not contradicted his previous statement. He has restated certain matters which have no relevance to my question.
For my part, I do not recant anything that I have said this afternoon in criticism of differential rates. If that is the view of the Conservative Members, they should go around preaching it to firms like Jaguar Motors and Elliott Automation—which has been quoted by hon. Members opposite—which plough back a great part of their profit, and many other of the great firms which have expanded their business by ploughing back profits year by year. The right hon. Gentleman owes it to the Committee to say how he stands upon this question.

Sir D. Glover: In a cogent speech earlier this evening, my right hon. Friend used the example of Elliott Automation to show that in the last seven years that company had acquired another £16 million of capital from outside and that its total retentions provided only £2 million.

Mr. Lever: That still does not answer my point. That was a company which used to plough back a great deal of its profits.
It is interesting to know that the right hon. Gentleman the Member for Altrincham and Sale, according to his first reply—he has not made it clear whether he has gone back on that—would tax those retentions at a higher rate of tax than the standard rate. He would penalise the retention of profits. It shows the folly of this hyperbolic party political statement, in which I do not want to indulge. It is a perfectly reasonable point of view of the right hon. Gentleman—I do not agree with it—that one should penalise profits that are retained in companies. I do not, however, accuse him of having a hatred of companies which seek to plough back profits, whereas his hon. Friend the Member for Shipley (Mr. Hirst) accused my right hon. Friend the Chancellor, on the strength of no greater evidence, of having a hatred of dividends and of people who pay them out.

Sir K. Pickthorn: It is obvious.

Mr. Lever: It illustrates the folly of this hyperbole. I am not in favour of making a differential rate of tax between dividends paid out and profits retained, but that does not entitle hon. Members opposite to say that those who have a contrary view hate dividends, hate shareholders and are anti-business.

Sir K. Pickthorn: Did the hon. Member hear the short speech of his right hon. Friend the Chancellor on the Motion to report Progress? The Chancellor made it plain. I do not blame the hon. Member if he was not here, because we have all been here quite long enough and we must go out now and then to eat and drink. If he heard his right hon. Friend's speech, the hon. Member surely cannot complain.

Mr. Lever: I was here. It was not on the strength of that speech that the hon. Member for Shipley said that my right hon. Friend hated dividends, shareholders and profits. It was on the strength of the differential tax which my right hon. Friend is introducing.

Mr. Hirst: The hon. Member has no right to say on what strength I made my remarks. I made by speech quite clearly. The hon. Member has no right to say what he is saying.

Mr. Lever: The hon. Gentleman should not upset himself, because we all respect his sincerity and the passion with which he speaks. Speaking for myself, I respect the hon. Gentleman's sincerity. He sincerely believes that he did not say what he did say. Having regard to the undoubted sincerity with which he deceives himself, I do not want to rebuke him, but when he reads HANSARD tomorrow he will see that he attributed to the Chancellor an evil motive simply on the basis of the Chancellor's having adopted a system of taxation which differentiates between dividends and retained profits and which is favourable to the former.

Mr. Peyton: Does the hon. Gentleman recall his right hon. Friend's speech on Second Reading, when he said that the shareholder was as redundant as a rhinoceros, or a dodo, or some other animal which the Chancellor called to mind? Would not the hon. Gentleman agree that that indicates some indifference at least, if not hostility, to shareholders?

Mr. Lever: By the distorted snatching of a few words the hon. Gentleman is deceiving himself, but nobody else. The Chancellor said on Second Reading, with great passion, that he did not desire the Finance Bill to divide the nation but to unite it. He would hardly say that, if he had uttered any words which had the gloss which the hon. Gentleman is seeking to impute. The Chancellor made it plain then, and has made it plain again today, that the myth that the Government is against business and the normal working of free enterprise is quite unjustified.

Mr. Shepherd: I do not quite understand what the hon. Gentleman has been saying, except perhaps that he wants to make some redemption of the slight damage he has done to the Government. As we wish to make progress, I do not want to detain the Committee by dealing with the eccentricities of the hon. Gentleman.
I support my right hon. Friend the hon. Member for Altrincham and Sale (Mr. Barber) in his Amendment, though I am a keen supporter of the concept of a Corporation Tax in this context. I believe that a good deal of the distortion in our company law and our company attitude arises from the attempt to apply a form of personal taxation to corporations. I believe that we ought to pursue


intelligently a Corporation Tax. This is not to say that I would support the views of the hon. Gentlemen opposite and the manner in which they are doing this.
I wish to make one simple point. It is useless for hon. Gentlemen on either side of the Committee to pontificate about what should or what should not be the retention or dispersing of the profits of a company. I do not take very much notice of what the Neumark Report said, or what the Chief Secretary said, or what my hon. Friend behind me said, because it is not true that anybody can lay down at any given moment of time the pattern of dividend distribution suited to the interests of the country or to the economy. A dividend distribution policy which might be good at one point of time in a company's life may not be the right dividend policy for a different period of its life.
All these statements with so-called academic backing, all these rigorous assertions about what is the correct and incorrect method of distributing profits, have no basis in reality at all. They are all fashioned on the view that business is something which is permanent and immutable, but no day's business is the same as the previous day's business. Therefore, hon. Gentlemen opposite should think most seriously about the view put forward by my right hon. Friend that we ought not to commit ourselves within the basis of a Corporation Tax and a fixed pattern of distribution which, although it may have reality at the present time, may have none in three or four years' time. We ought to leave it to the fiscal judgment of the companies themselves to decide what they wish to do with their resources.
I do not believe many of the wonderful things that my hon. Friends say about the City of London. I often think that many of our industrial firms are wiser than the people in the City. I would not assert that the City is necessarily wrong, any more than I would assert that those who run industrial companies are wrong. I want individual judgments to be made, and do not want to see a fiscal straitjacket put on those who have to take the decision of whether to distribute profits or retain them.
So I hope that all this nonsense which has been talked from both sides about

patterns which can be imposed and all those voluminous reports which pretend to show what ought to happen in this country or that country may be disregarded. We ought to aim at a form of taxation which enables each individual company to distribute its profits in the manner which it thinks best. It is along those lines we shall best serve the interests of the nation.

12.15 a.m.

Mr. Diamond: The speech of the hon. Member for Cheadle (Mr. Shepherd), as usual, was a most interesting one. I do not want to embarrass him, but he said, what not many on that side of the Committee have said, that the first step forward towards Corporation Tax is to recognise corporations as such—and to have a Corporation Tax. He went on to say, entirely consistently with his first point, that we do not want a fiscal straitjacket, and that what was right for today might not be right for the future. It is only if we have separate individual's tax and taxation of companies that we have the flexibility which is one of the major arguments claimed in support of the new kind of taxation—that we have the flexibility which enables us to adjust Corporation Tax, as may be appropriate, from time to time, without having the deterrent of the difficulties which are upon a Chancellor because he has to collect the main amount of his tax—large amounts, that is—through Income Tax. I thought the hon. Member's speech was a most interesting one indeed, and that it leaves the door open to some kind of agreement between the two sides.
However, the speech does not support the proposed Amendment, because the Amendment is that there should not be complete freedom to each company in fiscal terms to decide whether it distributes more or less, because this Amendment is an encouragement to distribution. It is an encouragement to distribution as opposed to our pattern, which is encouragement to plough back.
The hon. Gentleman is quite right in saying nobody should pontificate and it is possible to draw a variety of conclusions from a variety of studies—and I had read the study a long time before the hon. Gentleman retailed it to the Committee. He arrived at a tentative and negative conclusion, that nobody is able


to say, "The way to get companies growing, and the best way to ensure dividend policy, is as follows." Nobody has got as far as that, and we on this side are not pontificating. All we are saying is that, in practice, and, in fact, over the years, this is the way companies got their money; this is the way they get their additional money to develop, to grow. On both sides we have accepted, over many years now, that one of the greatest methods of increasing production, and indeed productivity, is investment—investment in additional plant, and premises, and so on—and if we accept that, we must try to enable companies to have the means of carrying this additional investment.

Sir Harmar Nicholls: That is all very well, but the hon. Gentleman cannot deny that the shareholder is the means of supplying capital and has been downgraded from the start. The hon. Member for Manchester, Cheetham (Mr. Harold Lever) used exaggerated language about my hon. Friend the Member for Yeovil (Mr. Peyton) in referring to the rhinoceros. It was the Chancellor who talked of the rhinoceros.
I refer to what the Chancellor said on 10th May, that
the shareholder as a means of supplying capital is really as redundant as the rhinoceros."—[OFFICIAL REPORT, 10th May, 1965; Vol. 712, c. 208.]
That is in accordance with all the speeches on the Government side, who are downgrading the shareholder as the supplier of capital.

Mr. Diamond: There is no question of downgrading the shareholders at all. The hon. Gentleman has been able to make the intervention which he wanted to make a long time ago. I do not complain, but there is no question of downgrading. There is an honest difference of opinion between those who are addressing themselves carefully and objectively to this problem. There is an honest difference of opinion whether growth—and we all want to see growth—is best engendered by encouraging dividends—I do not want to interrupt either the hon. Gentleman or my hon. Friend. I gave way to him—I will give way to him again.

Sir Harmar Nicholls: I beg the hon. Gentleman's pardon. There was a little exchange, quite out of order. I apologise.

Mr. Diamond: Nothing could be more satisfactory than that.
I do not think that the Committee would welcome a long series of quotations from me from a number of eminent judgments or from the Royal Commission on Taxation, drawing attention to the fact that a company is a separate entity from its shareholders, or that profits belong to the company and not to the shareholders until a dividend is declared, and so on. We all recognise there is a clear legal difference. That is the main difference and consequences flow from it. What I do want to deny utterly and completely is the imputation that goes with the word "penalising".
The hon. and learned Gentleman the Member for Solihull (Mr. Grieve) used it and the suggestion is that, because one proposes a different rate of tax on distributed profits as opposed to profits ploughed back, one is penalising. There is no question of penalising at all. The hon. and learned Gentleman has great knowledge of these things and must know that the average rate of dividends declared at present is 50 per cent. It is not a question of companies ploughing back 80 per cent. and 90 per cent. The average rate is 50 per cent.

Mr. Grieve: Since the hon. Gentleman addressed his observations through the Chair to me, I must say I do not resile from the word "penalised" for one moment. What is it if one puts a heavier taxation on distributed profits which go to the shareholders? What is that if it is not penalising?

Mr. Diamond: It is not a penalisation. Penalising is an emotive word and what we are talking about is an additional rate of tax, a smaller rate of tax, on the profits ploughed back. Would the hon. and learned Gentleman think for one moment to whom ploughed-back profits belong? They belong to the same shareholders as he says are being penalised. It is utter nonsense to draw this distinction. In a whole variety of companies the shareholders are delighted when directors move a modest rate of distribution so that the profits can pile up so that they shall be able to make large capital gains


with the profits not being distributed but being ploughed back. Many shareholders welcome that move by the directors and it is utter nonsense to differentiate in this way, on the hon. and learned Gentleman's own philosophy.
All we are saying is that, from the information available, the practice of companies is clearly established. We are not moralising at all. The practice of companies is clearly established: that they get by far the greater part—no matter whether the figures of the hon. Gentleman the Member for Wanstead and Woodford (Mr. Patrick Jenkin) are taken, or the Financial Times figures, or my figures, are taken, it does not matter at all—they all come back to the same answer: that the vast majority of new money used for investment by companies comes from their own realised profits. This is what the figures show.
That is why we are saying that if one wants to encourage growth one has got to give companies the means to enable them to achieve the growth. That is what we are saying. What no one has said, but no one can deny, is that the alternative method of encouraging distribution means that money goes to shareholders. But what do the shareholders do with it? Is it seriously suggested that every shareholder who gets a dividend retains the whole of it, 100 per cent., and does not spend a farthing—that he reinvests all of it?

Mr. Shepherd: If the existing distribution and retention system is satisfactory to the right hon. Gentleman and his colleagues, why are they attempting to change the whole system? Why not retain the same relationship?

Mr. Diamond: I am saying that it is a good thing to have a Corporation Tax and to have a separate tax on the company from the tax on the shareholders. That is what the hon. Member said.
We are left, then, with a question of rates. What we are talking about is whether we should encourage distribution or plough-back, and the argument between the two sides of the Committee is clearly established. Hon. and right hon. Gentlemen opposite do not like management. Their concern is exclusively for the shareholders. If the in-

terests of the shareholder and the interests of management are in conflict, hon. Members opposite support the shareholder every time. They represent the City and the recipient of the dividend. They care practically nothing about efficient and modern management. We are giving enterprising management a chance to show its merit and that is why we do not like the Amendment.

Mr. William Clark: As the Chief Secretary has not answered the debate, I wondered for a moment whether he had finished his speech. I will put the argument into perspective, and I hope that he will give the matter further thought.
My right hon. Friend the Member for Altrincham and Sale (Mr. Barber) stated that we are not wedded to the differential rates in the Amendment. May we consider the position today without the imposition of the penal taxation proposed in the Bill? On a profit of £100, a company is able to pay a gross dividend of £74. Under the Corporation Tax at a 40 per cent rate the gross dividend which it can pay is only £65. In terms of dividend, if the same slice of income is passed through, the dividend must be reduced from £74 to £60 gross, which is a reduction of 19·43 per cent.
This is the straitjacket into which the Chief Secretary and his colleagues are putting the investor. In the previous debate the hon. Gentleman used the spurious argument that only companies which pay a dividend of over 51½ per cent. will be affected. He forgot to tell the Committee that if a company paid a dividend of 51½ per cent., under the old system it paid £15 profits and under the new system it will pay £35 in Corporation Tax. Someone is having to pay an extra £20 of tax, and it can be only the investor in that company.
The Chief Secretary should have been a little more forthcoming when he said that only the company which is distributing over 50 per cent. of its profits will be affected. He should have said that, in addition, £20 of taxation would be clawed back by the Inland Revenue. It is no good the hon. Gentleman shaking his head. If he wants to disprove my figures I shall be glad to sit down. I agree with my hon. Friend the Member


for Wanstead and Woodford (Mr. Patrick Jenkin)—if we have an undynamic company and we encourage retention, what will happen to the retention? Can we be sure that they will put them to proper use? Would this not lead, possibly, to idle management?
12.30 a.m.
My right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd) gave some very good figures, and his examples included Elliott Automation. I think that the Chief Secretary will agree that that company is one of our leading progressive firms. Over the last six or seven years, Elliott Automation has increased its capital by £26 million. Only £3 million of that came from retentions. Where is the argument of the Chief Secretary that it is only companies which can retain which will have the dynamic growth?

Mr. Diamond: The hon. Member has been good enough to invite me to challenge the statement he made in contradiction of my allegation that the break-even point for dividends is 51½ per cent., that this would have the same effect. He says there is an extra £20—he has not thought the matter through—taken from somebody or other. If profits are £100 and the Corporation Tax is £35, that is the amount of tax paid up to that point on the old system where a dividend is paid. On that new system, we have £56¼ tax paid on the £100, and a recovery on the dividend of £21¼, leaving exactly the same £35 paid. Whichever way one does it, the same tax is suffered.

Mr. Clark: I think that the Chief Secretary's point when he put the figures was that the retention of the company would be exactly the same. I agree with him, but one cannot say that a company which has suffered £35 tax, which is the rate of Corporation Tax on £100, is in the same position as and has paid no more tax than a company with £100 profit which pays £15 Profits Tax. He should get the figures right. I accept his retention figures for the company, but, nevertheless, £20 more in tax will have been paid.
I want to get back to these undynamic companies and profitless expansion. I agree with my hon. Friends who have said that the real test of getting capital

for income is the market test, and the market test is the test of efficiency and profitability. What the Government are saying to companies—"We are allowing you to retain profits and you will get growth"—is pie in the sky. This will not follow naturally. The real test is whether the company is sufficiently attractive for the investor to want to put his money into it. The retention of profits does not matter. Under the Bill, the investor will certainly be hit, because at the moment, even with Profits Tax, the company must earn £134 so as to pay £100 dividend. Under the new system, the company will have to earn £166 so as to pay £100 dividend.
Surely this is a more penal rate than even hon. Gentlemen on that side of the Committee would accept. As the Chief Secretary said, if the retention is increased, of course the asset value of the company is increased. But in doing this, the Government are not allowing the shareholders or management to get away with any tax, because they have introduced the Capital Gains Tax. Even if there is any capital distribution of that profit, if it is merely an increase in dividends subsequently, the Revenue will collect its double taxation. We have seen it in the past, when we had the two-tier rate of Profits Tax. Huge retentions were made in the past by companies and these were ripe plums for the takeover people. This is the fallacy, I think, of this part of the Government's legislation.
If the Chief Secretary thinks that his Government are being modernistic, and progressive, I would invite him to look at the other countries with whom we are competing. In the United States and Luxembourg, which are the only two countries with double taxation in this way, the rate of personal taxation is infinitely lower than in this country. In Canada, there is an 80 per cent. tax on dividends in the hands of the recipient. In Germany there is a tax of 51 per cent. on profits retained and a 15 per cent. tax if it is all distributed.
The difference in terms of actual cash is that if a company retains all its profits in Germany, the retention rate is 49 per cent. but if it distributes a gross dividend it will pay 76 per cent., compared with the United Kingdom rate of 74 per cent. The Neumark Report stated that it would


be much better if the continental countries went towards the German and United Kingdom tax system. Instead, the Government are moving against it.
It does not matter which continental country one considers—the Netherlands, Belgium or others—one finds that they are moving towards a system of encouraging dividends. It is not good enough for the Chief Secretary to say that the distribution of dividends has not increased investment. According to his own figures investment out of retentions in recent years has been about 65 per cent., leaving 35 per cent. from other sources, as he said.
The Chief Secretary said that not all of it had come out of dividends; that it had been borrowed from the banks, institutions and other bodies. From where does the hon. Gentleman think that the banks, pension funds, institutions, and so on get their money unless they get it from savings? I should have thought that the Chief Secretary, with 35 years' experience of these matters, would realise that the 35 per cent. of investment in the past few years which has come from

the market has come out of the savings of people who have received investment income. I remind him that savings in this country have gone up from £100 million to £2,000 million a year.

The real difference between the two sides of the Committee is on the question whether one encourages retention for the sake of it or penalises the investor. My hon. Friends and I say that the investor should not be penalised. The person who is able to invest is not the idle management, to use the term that has been used, but the investor who should be given a proper rate of dividend. I agree with my hon. Friend the Member for Shipley (Mr. Hirst) that the Government are out of date and are doing something which our competitors discarded years ago. For these reasons, I must advise my hon. Friends to divide the Committee.

Question put, That the words proposed to be left out stand part of the Clause:—

The Committee divided: Ayes 283, Noes 279.

Division No. 162.]
AYES
[12.39 a.m.


Abse, Leo
Cousins, Rt. Hn. Frank
Garrett, W. E.


Albu, Austen
Craddock, George (Bradford, S.)
Garrow, A.


Allaun, Frank (Salford, E.)
Crawshaw, Richard
Ginsburg, David


Alldritt, Walter
Cronin, John
Gourlay, Harry


Allen, Scholefield (Crewe)
Crosland, Rt. Hn. Anthony
Greenwood, Rt. Hn. Anthony


Armstrong, Ernest
Crossman, Rt. Hn. R. H. S.
Gregory, Arnold


Atkinson, Norman
Cullen, Mrs. Alice
Grey, Charles


Bacon, Miss Alice
Dalyell, Tam
Griffiths, David (Rother Valley)


Bagier, Gordon A. T.
Darling, George
Griffiths, Rt. Hn. James (Llanelly)


Barnett, Joel
Davies, G. Elfed (Rhondda, E.)
Griffiths, Will (M'chester, Exchange)


Baxter, William
Davies, Harold (Leek)
Gunter, Rt. Hn. R. J.


Beaney, Alan
Davies, S. O. (Merthyr)
Hale, Leslie


Bence, Cyril
Delargy, Hugh
Hamilton, James (Bothwell)


Benn, Rt. Hn. Anthony Wedgwood
Dell, Edmund
Hamilton, William (West Fife)


Bennett, J. (Glasgow, Bridgeton)
Dempsey, James
Hamling, William (Woolwich, W.)


Binns, John
Diamond, John
Harper, Joseph


Bishop, E. S.
Dodds, Norman
Harrison, Walter (Wakefield)


Blackburn, F.
Doig, Peter
Hart, Mrs. Judith


Blenkinsop, Arthur
Donnelly, Desmond
Hattersley, Roy


Boardman, H.
Driberg, Tom
Hazell, Bert


Boston, T. G.
Duffy, Dr. A. E. P.
Healey, Rt. Hn. Denis


Bottomley, Rt. Hn. Arthur
Dunn, James A.
Henderson, Rt. Hn. Arthur


Bowden, Rt. Hn. H. W. (Leics S.W.)
Dunnett, Jack
Herbison, Rt. Hn. Margaret


Boyden, James
Edwards, Rt. Hn. Ness (Caerphilly)
Hill, J. (Midlothian)


Braddock, Mrs. E. M.
English, Michael
Hobden, Dennis (Brighton, K'town)


Bradley, Tom
Ennals, David
Holman, Percy


Bray, Dr. Jeremy
Ensor, David
Horner, John


Broughton, Dr. A. D. D.
Evans, Albert (Islington, S.W.)
Houghton, Rt. Hn. Douglas


Brown, Rt. Hn. George (Belper)
Evans, Ioan (Birmingham, Yardley)
Howarth, Harry (Wellingborough)


Brown, Hugh D. (Glasgow, Provan)
Fernyhough, E.
Howarth, Robert L. (Bolton, E.)


Buchan, Norman (Renfrewihire, W.)
Finch, Harold (Bedwellty)
Howell, Denis (Small Heath)


Buchanan, Richard
Fletcher, Sir Eric (Islington, E.)
Howie, W.


Butler, Herbert (Hackney, C.)
Fletcher, Ted (Darlington)
Hoy, James


Butler, Mrs. Joyce (Wood Green)
Fletcher, Raymond (Ilkeston)
Hughes, Cledwyn (Anglesey)


Callaghan, Rt. Hn. James
Floud, Bernard
Hughes, Emrys (S. Ayrshire)


Carmichael, Neil
Foley, Maurice
Hughes, Hector (Aberdeen, N.)


Carter-Jones, Lewis
Foot, Sir Dingle (Ipswich)
Hunter, Adam (Dunfermline)


Castle, Rt. Hn. Barbara
Foot, Michael (Ebbw Vale)
Hunter, A. E. (Feltham)


Chapman, Donald
Ford, Ben
Irvine, A. J. (Edge Hill)


Coleman, Donald
Fraser, Rt. Hn. Tom (Hamilton)
Irving, Sydney (Dartford)


Conlan, Bernard
Freeson, Reginald
Jackson, Colin


Corbet, Mrs. Freda
Galpern, Sir Myer
Jay, Rt. Hn. Douglas




Jeger, George (Goole)
Mulley,Rt.Hn.Frederick(SheffieldPk)
Silkin, John (Deptford)


Jeger,Mrs.Lena(H'b'n&amp;St.P'cras,S.)
Murray, Albert
Silkin, S. C. (Camberwell, Dulwich)


Jenkins, Hugh (Putney)
Neal, Harold
Silverman, Julius (Aston)


Jenkins, Rt. Hn. Roy (Stechford)
Newens, Stan
Skeffington, Arthur


Johnson, Carol (Lewisham, s.)
Noel-Baker, Francis (Swindon)
Slater, Mrs. Harriet (Stoke, N.)


Johnson, James (K'ston-on-Hull,W.)
Noel-Baker,Rt.Hn.Phllip(Derby,S.)
Slater, Joseph (Sedgefield)


Jones, Dan (Burnley)
Norwood, Christopher
Small, William


Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)
Oakes, Gordon
Smith, Ellis (Stoke, S.)


Jones, J. Idwal (Wrexham)
Ogden, Eric
Solomons, Henry


Jones, T. W. (Merioneth)
O'Malley, Brian
Soskice, Rt. Hn. Sir Frank


Kelley, Richard
Oram, Albert E. (E. Ham, S.)
Stonehouse, John


Kenyon, Clifford
Orbach, Maurice
Stones, William


Kerr, Mrs. Anne (R'ter &amp; Chatham)
Orme, Stanley
Strauss, Rt. Hn. G. R. (Vauxhall)


Kerr, Dr. David (W'worth, Central)
Oswald, Thomas
Summerskill, Hn. Dr. Shirley


Lawson, George
Owen, Will
Swain, Thomas


Leadbitter, Ted
Padley, Walter
Swingler, Stephen


Ledger, Ron
Page, Derek (King's Lynn)
Symonds, J. B.


Lee, Rt. Hn. Frederick (Newton)
Paget, R. T.
Taylor, Bernard (Mansfield)


Lee, Miss Jennie (Cannock)
Palmer, Arthur
Thomaa, George (Cardiff, W.)


Lever, Harold (Cheetham)
Pannell, Rt. Hn. Charles
Thomson, George (Dundee, E.)


Lewis, Arthur (West Ham, N.)
Pargiter, G. A.
Thornton, Ernest


Lewis, Ron (Carlisle)
Park, Trevor (Derbyshire, S.E.)
Tinn, James


Lipton, Marcus
Parker, John
Tomney, Frank


Lomas, Kenneth
Parkin, B. T.
Tuck, Raphael


Loughlin, Charles
Pavitt, Laurence
Urwin, T. W.


Mabon, Dr. J. Dickson
Pearson, Arthur (Pontypridd)
Varley, Eric G.


McCann, J.
Peart, Rt. Hn. Fred
Wainwright, Edwin


MacColl, James
Pentland, Norman
Walden, Brian (All Saints)


MacDermot, Niall
Perry, Ernest G.
Walker, Harold (Doncaster)


McGuire, Michael
Popplewell, Ernest
Wallace, George


Mclnnes, James
Prentice, R. E.
Watkins, Tudor


McKay, Mrs. Margaret
Price, J. T. (Westhoughton)
Weitzman, David


Mackenzie, Gregor (Rutherglen)
Probert, Arthur
Wells, William (Walsall, N.)


Mackie, John (Enfield, E.)
Pursey, Cmdr. Harry
White, Mrs. Eirene


McLeavy, Frank
Randall, Harry
Whitlock, William


MacMillan, Malcolm
Rankin, John
Wigg, Rt. Hn. George


Mahon, Peter (Preston, S.)
Redhead, Edward
Wilkins, W. A.


Mahon, Simon (Bootle)
Rees, Merlyn
Willey, Rt. Hn. Frederick


Mallalieu,J.P.W.(Huddersfield,E.)
Reynolds, G. W.
Williams, Alan (Swansea, W.)


Mapp, Charles
Rhodes, Geoffrey
Williams, Clifford (Abertillery)


Mason, Roy
Richard, Ivor
Williams, Mrs. Shirley (Hitchin)


Mayhew, Christopher
Roberts, Albert (Normanton)
Williams, W. T. (Warrington)


Mellish, Robert
Roberts, Goronwy (Caernarvon)
Willis, George (Edinburgh, E.)


Mendelson, J. J.
Robertson, John (Paisley)
Wilson, Rt. Hn. Harold (Huyton)


Mikardo, Ian
Robinson, Rt. Hn.K.(St. Pancras.N.)
Wilson, William (Coventry, S.)


Millan, Bruce
Rodgers, William (Stockton)
Winterbottom, R. E.


Miller, Dr. M. S.
Rogers, George (Kensington, N.)
Woodburn, Rt. Hn. A.


Milne, Edward (Blyth)
Rose, Paul B.
Woof, Robert



Ross, Rt. Hn. William
Wyatt, Woodrow


Molloy, William
Rowland, Christopher
Zilliacus, K.


Monslow, Walter
Sheldon, Robert



Morris, Alfred (Wythenshawe)
Shinwell, Rt. Hn. E.
TELLERS FOR THE AYES:


Morris, Charles (Openshaw)
Shore, Peter (Stepney)
Mr. Ifor Davies and Mr. Alan Fitch.


Morris, John (Aberavon)
Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)





NOES


Agnew, Commander Sir Peter
Bowen, Roderic (Cardigan)
Cooper, A. E.


Alison, Michael (Barkston Ash)
Box, Donald
Cooper-Key, Sir Neill


Allan, Robert (Paddington, S.)
Boyd-Carpenter, Rt. Hn. J.
Cordle, John


Allason, James (Hemel Hempstead)
Boyle, Rt. Hn. Sir Edward
Corfield, F. V.


Amery, Rt. Hn. Julian
Braine, Bernard
Costain, A. P.


Anstruther-Gray, Rt. Hn. Sir W.
Brewis, John
Courtney, Cdr. Anthony


Astor, John
Brinton, Sir Tatton
Craddock, Sir Beresford (Spelthorne)


Atkins, Humphrey
Bromley-Davenport,Lt.-Col. Sir Walter
Crawley, Aidan


Awdry, Daniel
Brooke, Rt. Hn. Henry
Crosthwaite-Eyre, Col. Sir Oliver


Baker, W. H. K.
Brown, Sir Edward (Bath)
Crowder, F. P.


Balniel, Lord
Bruce-Gardyne, J.
Cunningham, Sir Knox


Barber, Rt. Hn. Anthony
Bryan, Paul
Curran, Charles


Barlow, Sir John
Buchanan-Smith, Alick
Currie, G. B. H.


Batsford, Brian
Buck, Antony
Dalkeith, Earl of


Beamish, Col. Sir Tufton
Bullus, Sir Eric
Dance, James


Bennett, Sir Frederic (Torquay)
Burden, F. A.
Davies, Dr. Wyndham (Perry Barr)


Bennett, Dr. Reginald (Gos &amp; Fhm)
Buxton, Ronald
d'Avigdor-Goldsmid, Sir Henry


Berkeley, Humphry
Campbell, Gordon
Dean, Paul


Berry, Hn. Anthony
Carlisle, Mark
Deedes, Rt. Hn. W. F.


Bessell, Peter
Carr, Rt. Hn. Robert
Digby, Simon Wingfield


Bitten, John
Cary, Sir Robert
Doughty, Charles


Biggs-Davison, John
Chataway, Christopher
Douglas-Home, Rt. Hn. Sir Alec


Bingham, R. M.
Chichester-Clark, R.
Drayson, G. B.


Birch, Rt. Hn. Nigel
Clark, Henry (Antrim, N.)
du Cann, Rt. Hn. Edward


Black, Sir Cyril
Clark, William (Nottingham, S.)
Eden, Sir John


Blaker, Peter
Cole, Norman
Elliot, Capt. Walter (Carshalton)


Bossom, Hn. Clive
Cooke, Robert
Elliott, R. W.(N 'c' tle-upon-Tyne, N.)







Eyre, Reginald
Kaberry, Sir Donald
Price, David (Eastleigh)


Farr, John
Kerby, Capt. Henry
Prior, J. M. L.


Fell, Anthony
Kerr, Sir Hamilton (Cambridge)
Pym, Francis


Fisher, Nigel
Kilfedder, James A.
Quennell, Miss J. M.


Fletcher-Cooke, Charles (Darwen)
Kimball, Marcus
Ramsden, Rt. Hn. James


Fletcher-Cooke, Sir John (S'pton)
King, Evelyn (Dorset, S.)
Rawlinson, Rt. Hn. Sir Peter


Foster, Sir John
Kirk, Peter
Redmayne, Rt. Hn. Sir Martin


Fraser, Rt.Hn.Hugh(St'fford &amp; Stone)
Lagden, Godfrey
Rees-Davies, W. R.


Gammans, Lady
Lambton, Viscount
Renton, Rt. Hn. Sir David


Gardner, Edward
Lancaster, Col. C. G.
Ridsdale, Julian


Gibson-Watt, David
Langford-Holt, Sir John
Roberts, Sir Peter (Heeley)


Giles, Rear-Admiral Morgan
Legge-Bourke, Sir Harry
Robson Brown, Sir William


Gilmour, Ian (Norfolk, Central)
Lewis, Kenneth (Rutland)
Rodgers, Sir John (Sevenoaks)


Gilmour, Sir John (East Fife)
Litchfield, Capt. John
Roots, William


Glover, Sir Douglas
Lloyd, Rt.Hn.Geoffrey(Sut'nC'dfield)
Royle, Anthony


Glyn, Sir Richard
Lloyd, Ian (P'tsm'th, Langstone)
Russell, Sir Ronald


Goodhart, Philip
Lloyd, Rt. Hn. Selwyn (Wirral)
St. John-Stevas, Norman


Goodhew, Victor
Longbottom, Charles
Scott-Hopkins, James


Gower, Raymond
Longden, Gilbert
Sharples, Richard


Grant, Anthony
Loveys, Walter H.
Shepherd, William


Grant-Ferris, R.
Lubbock, Eric
Sinclair, Sir George


Gresham Cooke, R.
Lucas, Sir Jocelyn
Smyth, Rt. Hn. Brig. Sir John


Grieve, Percy
McAdden, Sir Stephen
Spearman, Sir Alexander


Griffiths, Eldon (Bury St. Edmunds)
MacArthur, Ian
Stainton, Keith


Griffiths, Peter (Smethwick)
Mackenzie, Alasdair (Ross&amp;Crom'ty)
Stanley, Hn. Richard


Grimond, Rt. Hn. J.
McLaren, Martin
Steel, David (Roxburgh)


Gurden, Harold
Maclean, Sir Fitzroy
Stodart, Anthony


Hall, John (Wycombe)
Macleod, Rt. Hn. Iain
Stoddart-Scott, Col. Sir Malcolm


Hall-Davis, A. G. F.
McNair-Wilson, Patrick
Studholme, Sir Henry


Hamilton, Marquess of (Fermanagh)
Maglnnis, John E.
Talbot, John E.


Hamilton, M (Salisbury)
Maitland, Sir John
Taylor, Sir Charles (Eastbourne)


Harris, Frederic (Croydon, N.W.)
Marples, Rt. Hn. Ernest
Taylor, Edward M. (G'gow,Cathcart)


Harris, Reader (Heston)
Marten, Neil
Taylor, Frank (Moss Side)


Harrison, Brian (Maldon)
Maude, Angus
Teeling, Sir William


Harrison, Col. Sir Harwood (Eye)
Mawby, Ray
Temple, John M.


Harvey, Sir Arthur Vere (Macclesf'd)
Maxwell-Hyslop, R. J.
Thatcher, Mrs. Margaret


Harvey, John (Walthamstow, E.)
Maydon, Lt.-Cmdr. S. L. C.
Thomas, Sir Leslie (Canterbury)


Harvie Anderson, Miss
Meyer, Sir Anthony
Thomas, Rt. Hn. Peter (Conway)


Hawkins, Paul
Mills, Peter (Torrington)
Thompson, Sir Richard (Croydon, S.)


Hay, John
Mills, Stratton (Belfast, N.)
Thorneycroft, Rt. Hn. Peter


Heald, Rt. Hn. Sir Lionel
Miscampbell, Norman
Tiley, Arthur (Bradford, W.)


Heath, Rt. Hn. Edward
Mitchell, David
Tilney, John (Wavertree)


Hendry, Forbes
Monro, Hector
Turton, Rt. Hn. R. H.


Higgins, Terence L.
More, Jasper
Tweedsmuir, Lady


Hiley, Joseph
Morgan, W. G.
van Straubenzee, W. R.


Hill, J. E. B. (S. Norfolk)
Morrison, Charles (Devizes)
Vaughan-Morgan, Rt. Hn. Sir John


Hirst, Geoffrey
Mott-Radclyffe, Sir Charles
Vickers, Dame Joan


Hobson, Rt. Hn. Sir John
Munro-Lucas-Tooth, Sir Hugh
Walder, David (High Peak)


Hogg, Rt. Hn. Quintin
Murton, Oscar
Walker, Peter (Worcester)


Hooson, H. E.
Neave, Airey
Walters, Dennis


Hopkins, Alan
Nicholls, Sir Harmar
Ward, Dame Irene


Hordern, Peter
Nicholson, Sir Godfrey
Weatherill, Bernard


Hornby, Richard
Noble, Rt. Hn. Michael
Wells, John (Maidstone)


Hornsby-Smith, Rt. Hn. Dame P.
Onslow, Cranley
Whitelaw, William


Howard, Hn. G. R. (St. Ives)
Orr, Capt. L. P. S.
Williams, Sir Rolf Dudley (Exeter)


Howe, Geoffrey (Bebington)
Orr-Ewing, Sir Ian
Wills, Sir Gerald (Bridgwater)


Hunt, John (Bromley)
Osborn, John (Hallam)
Wilson, Geoffrey (Truro)


Hutchison, Michael Clark
Osborne, Sir Cyril (Louth)
Wise, A. R.


Iremonger, T. L.
Page, John (Harrow, W.)
Wolrige-Gordon, Patrick


Irvine, Bryant Godman (Rye)
Page, R. Graham (Crosby)
Wood, Rt. Hn. Richard


Jenkin, Patrick (Woodford)
Pearson, Sir Frank (Clitheroe)
Woodhouse, Hn. Christopher


Jennings, J. C.
Percival, Ian
Woodnutt, Mark


Johnson Smith, G. (East Grinstead)
Peyton, John
Yates, William (The Wrekin)


Johnston, Russell (Inverness)
Pickthorn, Rt. Hn. Sir Kenneth
Younger, Hn. George


Jones, Arthur (Northants, S.)
Pike, Miss Mervyn



Jopling, Michael
Pitt, Dame Edith
TELLERS FOR THE NOES:


Joseph, Rt. Hn. Sir Keith
Powell, Rt. Hn. J. Enoch
Mr. Ian Fraser and




Mr. Dudley Smith.

Mr. Callaghan: I beg to move,
That the Chairman do report Progress and ask leave to sit again.

Hon. Members: No.

The Deputy-Chairman (Sir Samuel Storey): Order. I must ask hon. Members to keep quiet so that I may hear what is being addressed to the Chair.

Mr. Callaghan: It looks as though I may have to rely on the support of the

Opposition against my hon. Friends. What a dilemma! What do the Opposition wish to do? It is quite clear that the Government have re-established their ascendancy. Our majority is 25 per cent. up on what it ought to be and in these circumstances we ought to give the Opposion time to refresh themselves for to-morrow. The speeches, although still coherent, have lost that zip and sparkle


which they had several hours ago and it is only fair to hon. Members opposite that we should give them another opportunity.
After all, we have had 52 or 53 Divisions on the Bill and we have won every one of them. [HON. MEMBERS: "No."] Tomorrow we had better start on the second half and see whether the Opposition can score a goal or so. They have nearly got into the net, but not quite. This is not the time to continue a debate of this nature. I say it in all good humour.
We have had a very hard day's work. We have not made as much progress as I would have liked, but it is fair to say, on behalf of both sides of the Committee, if I may speak for both sides of the Committee—[HON. MEMBERS: "No."] All right, I speak for myself and my hon. Friends when I say that we have had an excellent debate, with very good speeches. Having thrashed out the substance and principle of the Clause, I hope that we shall be able to make much faster progress tomorrow than we have today.

Mr. Heath: After a night of high drama, the Chancellor of the Exchequer has decided to release his colleague and his hon. Friends behind him from the intolerable position in which they find themselves.

Mr. E. Shinwell: Mr. E. Shinwell (Easington) indicated dissent.

Mr. Heath: I hope that the right hon. Gentleman is not suggesting that the Leader of the House has lost control of hon. Members opposite.
This brief respite which they are claiming will no doubt give the Postmaster-General time to install Division bells in the Crypt—[Interruption.]—or in another place, or wherever hon. Members can have been at that dramatic moment.
I agree that we have had a splendid debate. We have got through a lot of work, which should enable us to deal with the specific problems which arise in the Amendments that are to come.

Once again, the Chancellor of the Exchequer shows himself to be the gentle, reasonable, kindly and moderate man which he likes us to think he is, but, above all, he shows wisdom in releasing his party from this position. He made the somewhat challenging remark that we had not quite got there this time. Last week, he survived by one vote, and tonight he has survived by the casting vote of the Chair. Next time he will not survive.

Question put and agreed to.

Committee Report Progress; to sit again this day.

RACE RELATIONS [MONEY]

Resolution reported,
That, for the purposes of any Act of the present Session to prohibit discrimination on racial grounds in places of public resort, it is expedient to authorise the payment out of moneys provided by Parliament of any sums payable out of moneys so provided under or by virtue of any provision of the said Act relating to the constitution and functions of a Race Relations Board and local conciliation committees.

Resolution agreed to.

REGISTRATION OF BIRTHS, DEATHS AND MARRIAGES (SCOTLAND) [MONEY]

Resolution reported,
That for the purposes of any Act of the present Session to make new provision as respects the registration of births. deaths and marriages in Scotland, it is expedient to authorise—

(a) the payment out of moneys provided by Parliament—

(i) of any sums payable under that Act out of moneys so provided in respect of the salary of a Registrar General and his expenses, including salaries or remuneration of officers appointed by him, and
(ii) of any increase attributable to that Act in the sums payable out of moneys so provided by way of Exchequer Equalisation Grant under the enactments relating to local government in Scotland,

(b) any payment into the Exchequer.

Resolution agreed to.

COAST EROSION

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Ifor Davies.]

12.57 a.m.

Mr. Bert Hazell: After such an exciting night, what I have to draw attention to may seem a very minor matter, but for the authorities charged with the responsibility for protecting our coasts from the ravages of the sea it is a matter of considerable importance.
It was the Labour Government of 1949 who passed the Coast Protection Act, by which local authorities were given the responsibility of protecting and maintaining land and the coast line generally, and under which grants were made available to them for the first time from central funds. They were given a proportion of the cost of capital works, but had to find from their own rates, and still have to find, the remaining amount of money.
I am informed that grants from central funds for capital works range from 40 per cent. to 80 per cent. The basis of each scheme is not a fixed grant, but is negotiable between the Ministry of Housing and Local Government and the local authority having responsibility for the scheme. Responsibility for some sections of the coast rests with river authorities, and the method of financing those authorities is different. A river authority is mainly concerned with low lying agricultural land.
In recent years the country has had a great awareness of the need to protect our coastline, and rightly so. With a continually growing population, we can ill-afford to lose year by year large tracts of land, and thus it is natural that those who live in the areas involved should show greater concern in this matter than perhaps our forefathers did.
I think that the conscience of the nation was substantially awakened during the great floods of 1953. As a consequence of the disaster which affected many parts of the country in January of that year, and the loss of human life and damage to property, land and industrial concerns, there was set up what became known as the Waverley Committee which was charged with the responsibility for

ascertaining whether some new Measures ought to be passed by Parliament to deal with the issue.
The Report, which I have studied carefully, revealed that in January, 1953, about 1,200 breaches occurred around our coastline, 160,000 acres of land were flooded, over 300 lives were lost, 24,000 houses were flooded and damaged, and over 200 industrial premises were inundated. The estimated cost of repairs to the coastline arising from these breakthroughs was about £30 million.
Since then, to those living in the affected areas there has always been the fear of a repetition. They have never forgotten the tragedies that occurred in that year. My constituents in North Norfold have always been conscious of the ravages of the sea. The coastline from Wells-next-the-Sea down to Horsey near Great Yarmouth is protected either by shingle or sand bars or by soft and erodable cliffs. As a consequence, a constant watch is necessary and a substantial amount of money has to be spent on sea defence work.
The Waverley Committee, in its Report, considered the question whether coast protection should become a national responsibility, the provision of the money and supervision being undertaken by the Government, but it came to the view that this was not at that time a wise procedure to adopt. The Waverley Committee suggested that local authorities desired to retain a measure of supervision over work that was being undertaken in their localities. It was felt that a proportion of the cost should still be paid by those who would benefit directly from the protection of the coastline.
However, this Report was published 11 years ago, in May, 1954, and since then there has been a change in public opinion. Local authorities are increasingly veering round to the viewpoint that the financial burden of providing defence works around our coasts is greater than local authorities can be expected to bear, in addition to the grants for which they are responsible together with all the other calls upon local rates.
Many large schemes are contemplated in my constituency and some are being carried out, but the problem even there is not solved by the work in hand or


immediately contemplated. Local authorities in the constituency have approached me on this matter. Sheringham Urban District Council feels very strongly that unless this coastline on each side of its township is protected, at no late date the town will be sticking out as a peninsula along the coast. The council feels that this could be very dangerous for the long-term future of the town.
A shingle bar protects the village of Salthouse from the sea. In December last that bar was seriously eroded and all the marshland behind it substantially flooded. The river board which is responsible for this section brought in large bulldozers to mend the breach, but in February other heavy storms occurred and once again the shingle was affected. Remedial works are being put in hand at present, but I am constantly receiving communications from parishioners and the parish council about their fears that this shingle bar is no real safeguard against the ravages of the sea at that point and that at any time in the immediate future the shingle bar could be washed away and a repetition of 1953 occur.
It is true that a number of houses which were then so badly damaged that they could not be inhabited were rebuilt on high ground, but there are still quite a number of cottages on the low ground and they would be seriously affected if the shingle bar gave way.
At Overstrand, in my constituency, there is a large cliff fall which spreads out over the promenade. It has been there for several months. Although at the moment negotiations have been concluded with the Ministry of Housing and Local Government for aid at this point on the cliff, the work has yet to be started. Those who derive their livelihood by taking guests in the hotels and boarding houses are concerned about the future if some quick action is not taken to make the promenade available to visitors and residents in the approaching summer days.
I said earlier that there is a general tendency now for local authorities to veer round to the view that coast protection should become a national responsibility. At the same time, I must admit that local authorities would prefer to

supervise the work. If the Ministry or the Government could not accept responsibility solely for finding the necessary money and undertaking the work, the local authorities would be prepared to supervise the work if the Ministry were prepared to make a 100 per cent. grant in each case of capital works.
The Ministry might take the view, expressed in the Waverley Report, that local authorities should still carry a small percentage of the cost. If this should be the view, local authorities have urged me to ask the Government to fix a percentage grant similar to that provided, as I understand, to the river board. The river board, when taking on responsibility for capital works on its section of that coastline is, I am informed, in receipt of 85 per cent. grant from central funds and 15 per cent. from precepts that it makes from the ordinary collection of river rates. If the local authorities knew in advance what their percentage of grant was to be, and if it could be in the region of 85 to 90 per cent., this would relieve them of a great financial burden. They would wish for 100 per cent. grant. But, if that is not possible, I put forward the suggestion of a compromise basis that would be welcomed by the local authorities.
The problems are not confined entirely to the coastline in my constituency. They are borne almost the whole way around Britain. In Yorkshire, Suffolk and on the West Coast, the problem literally is the same. In view of the urgent necessity for continuing to tackle this job, a suggestion has been made—and I put it forward for consideration by the Government—that perhaps the time has come for a Dutch consultant, versed in sea defence work, to be called to Britain to prepare a report on the whole of the coastline to ascertain what is required and how defence works can be conceived to protect our shores. At the same time, perhaps he could advise the Government on works of reclamation that could well be undertaken in some parts of Britain. I think that more works of reclamation might be underaken in The Wash than has been the case in recent years.
I have seen thousands of acres of the Humber Estuary that could easily be reclaimed if the money were forthcoming


As we have lost, and are continuing to lose, so much of our coastline to the ravages of the sea, surely we ought to try to reclaim areas that could be made available if appropriate schemes were devised.
It has been suggested that the responsibility is not really one for the nation. I suggest that the whole nation secures benefit by the efforts made by our coastal areas. The coastal areas are not just problems for the district, urban and county authorities in the localities. They are the responsibility of the whole nation and the nation as a whole should pay its full contribution. This is my reason for putting forward these suggestions.
We may not be able to call on our waves to halt, as King Canute, in years gone by, did, but, because we are a small island, and our population continues to increase, we as a nation should face up to our responsibilities for protecting our shores and should not have to call on the immediate areas affected, out of their limited resources, to meet the responsibility for the costs. The nation should meet the major responsibility for costs by the Exchequer contribution to the general rate funds.

1.15 a.m.

The Joint Parliamentary Secretary to the Ministry of Housing and Local Government (Robert Mellish): I am sure that the House is indebted, as will be his constituents, for the way in which my hon. Friend the Member for Norfolk, North (Mr. Hazell) has presented his case to the House. Since he has been a Member, he has proved his value to his constituents and they can take pride in the way in which he presents cases on their behalf.
This is not a subject which frequently exercises the mind of the House. It is probably fair to take this as an indication that the Statute which governs the matter is, on the whole, working well and that the various parties which have functions under it are doing their jobs properly. My hon. Friend has reminded the House that the governing Statute is a good one. It was passed, as he rightly said, under a Labour Administration in 1949.
Although, as a maritime nation, our problem is widespread, it is not the only danger which the coast experiences from the sea. As my hon. Friend reminded

us from our experiences 12 years ago, the sea can cause dangerous flooding where the land near the coast is low lying. But although the problems of coast erosion tend to be less dramatic, they are, nevertheless, real and, in some places, serious.
The Act which enables the maritime local authorities to deal with coast erosion is the Coast Protection Act, 1949, which was passed by a Labour Government. This enables the authorities, among other things, to carry out schemes to prevent erosion and to make orders prohibiting the removal of beach material except under licence. To some extent, the exercise of these powers must he regarded as a duty, because Section 29 of the Act enables the Minister to make an order declaring a coast protection authority to be in default if he is satisfied that it has failed to take sufficient measures for the protection of any land in its area.
That is not to say, however, that protection is justified wherever land is being eroded. It would be unrealistic and unreasonable to expect to protect every square foot of land from attack. Coast protection is expensive, as my hon. Friend has reminded the House, and one always has to make some evalutation, although not entirely on an £ s. d. basis, of the risk against which works are proposed. On the one hand, it is easy to visualise circumstances in which protection is clearly not justified and, on the other, circumstances in which it is. In between, there can be some difficult questions both as to the necessity for works and as to when, in the public interest, it is best that they should be carried out.
Where a local authority makes a scheme, it is the Minister's function to examine it and, if it is sound, to approve it. If there are objections to the carrying out of the scheme, it is his duty to adjudicate upon them. It may be of interest to the House to know that since the Act was passed the total value of schemes approved for England and Wales is about £21 million.
With that background and with the mention of that figure, perhaps I might now turn to the question of finance, which worries my hon. Friend. It is not only the incidence of coast erosion which is haphazard. The burden of


carrying out protective works is also by no means uniform. There are coastal districts with high rateable resources and which have little or no protection works to carry out. At the other end of the scale, there are authorities with comparatively small resources which have a great deal of work to do. As my hon. Friend has said, his constituency includes authorities of this kind. It was for this reason that the Coast Protection Act provided for Exchequer grants towards the cost of coast protection works. They are discretionary grants and are not based on any fixed percentage of the cost of the works.
Before I go further, I should, perhaps, remind the House that the general question of the relationship between central and local government finance is, as my hon. Friend knows, now being studied, but I am of necessity basing what I say on the existing law and practice. The Government's policy has been, and is, to pay high grants where financial help is most needed and relatively small grants, or no grant at all, where the coast protection authority is better able to meet the cost itself. The normal maximum grant is about 80 per cent. of the cost of the scheme.
This grant from the Exchequer, however, is not the limit of the financial assistance available to a district council. The Act provides that where the Minister grant-aids a project, the county council must also do so. Where the cost of the work is high in relation to the district council's resources, and the Minister is making a high grant, it is quite common for the county council to meet, usually by way of a contribution towards the loan charges, 50 per cent. of the burden remaining upon the district council after the Exchequer grant has been taken into account. Further, where the council qualifies for rate deficiency grant, this grant is payable on the balance of the cost of the scheme, as it is charged to revenue.
It can thus be seen that the scope for assistance towards the capital cost of schemes is very considerable. Where the Exchequer pays 80 per cent. of the cost and the county council pays half the remainder—that is, 10 per cent.—the district council has to find only the remaining 10 per cent. If the council quali-

fies for rate deficiency grant of, say, 40 per cent.—and the two rural district councils in my hon. Friend's constituency which have coast protection problems qualify for rate deficiency grant of this order of magnitude—the effective burden on the district council in respect of the capital cost of the scheme is only about 6 per cent.
I am not, of course, suggesting that this sort of arithmetic applies in the generality of cases; but it indicates the extent to which the present way of financing schemes does help local authorities. Of course, I realise that where there is much expensive work to carry out, even the small fraction of the cost left for the district council to bear may seem unduly large. I am not persuaded, however, that it would be right to go even further than we do. An 80 per cent. grant from the Exchequer is a very large subvention, when all is said and done.
I might say at this point that the total amount of grants paid or promised in respect of the £21 million worth of schemes which I mentioned earlier is about £11½ million. This works out at an average of about 55 per cent., which shows that the Exchequer is rather more than an equal partner with the local authorities in financing the cost of coast protection schemes.
It is sometimes argued that coast protection ought to be a national charge. The Government do not agree with this view. The Departmental Committee on Coastal Flooding, which considered this matter following the disastrous floods of 1953, came to the conclusion that the principles on which sea defence works—both in relation to flooding and erosion—as at present financed are right; that sea defence does concern the people in areas where defence schemes are undertaken and there is a reasonable case for contributions through the rates from inhabitants of the area. The Committee was perfectly clear in this matter—and we think it is right that the principle should continue—that it is right to keep the grant system flexible so that money goes where it is most needed.
My hon. Friend suggested that there might be a grant from the Exchequer towards the cost of maintaining sea defence works, and he pointed out that this may in some cases be a considerable


burden on the district council. The Government could not agree to specific grants towards this expenditure. Generally speaking, they think it right that the maintenance of capital works should be a local responsibility; and, in fact, one of the reasons why capital grants are allowed to reach such a high percentage is the understanding that the coast protection authority will maintain the works without further aid from the Exchequer. If grants towards maintenance expenditure were introduced we should have to consider reviewing the scale of capital grants to take this into account.
In practice, it would be very difficult, if not impossible, to evolve a satisfactory system for grant-aiding maintenance, especially day-to-day maintenance, without having at the back of it some arrangements for inspection and control of the expenditure. This would be administratively very cumbersome, and I would doubt whether the generality of authorities would welcome it. It is relevant to mention that the river authorities receive only capital grants and not grants towards maintenance in respect of their expenditure on sea defences against flooding. But, of course, where the local authority qualify for rate deficiency grant, that grant is payable on this maintenance expenditure.
My hon. Friend drew attention to the differences between the grants paid to river authorities for defences to prevent sea flooding and those paid to coast protection authorities for defences against erosion. He pointed out that in Norfolk there is one rate of grant for the river authority wherever it carries out works, but there are varying grants to the coast protection authorities. Furthermore, the capital grant payable—85 per cent.—is higher than the maximum ordinarily paid to coast protection authorities.
On the question of the maximum grant, I wonder whether there is any reason which will stand up to examination why the grants should be exactly the same. Different authorities carry out the works. The authorities have a quite different range of problems to meet, and the method of raising money to cover their expenditure is different. Finally, the sea defence works they carry out are to deal with an entirely different problem, and the defences themselves are often different in character.
In the light of these differences I do not think that the difference of 5 per cent. in the maximum grant is really significant. The main point is that they are both very substantial grants. I use the term "maximum grant", in relation to flood defences, advisedly. It would be wrong to assume that all river authorities are paid 85 per cent. for their sea defence works. As in the case of coast protection authorities, the amount of grant is related to their individual circumstances. I am informed that the percentages payable in respect of sea defence works over the country as a whole vary from 35 per cent. to 85 per cent.
My hon. Friend's third point was whether or not we could call in experts from overseas to advise on the problems. It is, of course, perfectly right to point out that, to deal with the problem most efficiently, we should keep abreast of developments overseas, particularly in countries which may have a bigger problem than we have to face. But although the coast protection works are carried out by a large number of maritime local authorities, the design of coast protection works is genuinely recognised as re-requiring specialist expertise and a large number of the authorities engage as consultants for their schemes engineering firms who have specialised in this work. It is through them that experience overseas is brought to bear on the design of our works here.
In speaking of technical assistance available to coast protection authorities, it would be right to mention the work of the Hydraulics Research Station. It is always available to help on special problems which face local authorities.
My hon. Friend has done a great service to his constituents, and, indeed, the House, in calling attention to this matter and I am only sorry I cannot give him a better reply. He knows, though, that in the Ministry we have an open door, and will consider any points which he wants to put to us, but on his point tonight, of the increased Exchequer grant, I am sorry to have to tell him that we do not believe that the case for that is yet made out.

Question put and agreed to.

Adjourned accordingly at twenty-seven minutes past One o'clock.